WENDY PIERRO/Acorn Newspapers NO EASY WAY OUT—U.S. Secretary of the Treasury Henry Paulson speaks to a packed crowd Nov. 20 at the Reagan Library in Simi Valley. Paulson told the audience of about 1,000 people that the "excesses of our system built up over the years" preclude a quick fix to the economy. United States Treasury Secretary Henry Paulson defended the government's intervention in the nation's financial crisis and discussed what's needed for a turnaround when he spoke at the Ronald Reagan Presidential Library in Simi Valley Nov. 20.

The audience of about 1,000 included former California Gov. Pete Wilson.

"I believe we have taken the necessary steps to prevent a financial collapse," Paulson said.

"Working with the Fed and the FDIC (Federal Deposit Insurance Corporation), we now have the tools and the commitment to do what is necessary to maintain the stability of our financial system."

It won't be a quick fix, Paulson added, because the "excesses of our system built up over years."

Paulson blamed several factors for those excesses, beginning with the U.S. housing bubble, "the spark that ignited the financial crisis." Global growth, low U.S. savings rates and policy choices led to global imbalance and an increase in capital flows, much of it invested in U.S. assets. Financial institutions found new ways to increase leverage, but regulation did not keep pace, Paulson said.

"Our economy and our country are paying a steep price for that neglect," Paulson said.

He believes the government's involvement was necessary in order to limit further damage. Stability and recovery are needed first, followed by repair and comprehensive changes to avoid a repeat of the turmoil, he added.

"There was no playbook for responding to a once or twice in a hundred years event," Paulson said.

As part of required reforms, Paulson called for regulatory oversight of "any systemically important financial company," as well as transparency and an examination of financial institutions' compensation policies.

"Compensation practices should not encourage unsafe and unsound risktaking or reward failure," Paulson said.

"We need reform while not rewarding failure and encouraging recklessness."

Keeping lending going is the most important thing that can be done to help the housing market, Paulson said. The government is continuing to look for ways to mitigate foreclosures. He described Fannie Mae and Freddie Mac, the biggest U.S. home loan finance companies, as an important part of the solution.

"We got Fannie Mae and Freddie Mac to come out with some new, very strong servicer guidelines," Paulson said. "This is complex, and we are working very hard on it."

Working closely with other countries is critical in order to strengthen the global economy, Paulson said.

"The United States must lead global financial reform efforts, and we must start by getting our own house in order," Paulson said.

Audience members didn't shy away from asking questions, and and a small group protested outside the library against financial bailout by the government.

Paulson was asked when he expects the economy to hit rock bottom so that recovery can begin. Paulson acknowledged that he didn't know.

"We're a strong, entrepreneurial nation. We have the resources, we have the tools to deal with this," Paulson said.

"Getting credit flowing, that is going to be the key."

On the struggling auto industry, Paulson acknowledged that a failure would not be good; however, any assistance, whether in the form of a bridge loan or permanent financing, would not help without a long-term financial plan.

"It doesn't make sense to put money in if there is no clear path to viability," Paulson said.

Paulson is working with Presidentelect Barak Obama's transition team. He called for Democrats and Republicans to cooperate in finding solutions for restoring economic stability.

"We're all Americans, and we're all pulling for the next president and his team because we all need to come together," Paulson said. "It's important we get it right."

Although the audience gave Paulson a standing ovation—with Paulson acknowledging that it had been a long time since he had received a warm welcome—some were not impressed by the speech.

"My big problem with the overall tone of his presentation is that everything is predicated on government solutions and less on free market fixes," said Paul Anderson of Thousand Oaks. "It's brave of him to come and speak, especially in Ronald Reagan country. I don't think Ronald Reagan would have had the same take on the situation."