Paulson: Bush right on Wall Street 'hangover' quip

WASHINGTON — Treasury Secretary Henry Paulson, a former investment firm executive, says "absolutely there's a lot of truth" to President Bush's comment that Wall Street "got drunk and now it's got a hangover," in understanding the current economic climate.

Paulson also is taking a wait-and-see approach on a possible second round of economic aid, an idea that congressional Democrats are pushing to a vote. The $168 billion program of tax rebate checks that Bush signed into law in February was the right size to help the struggling economy this year, Paulson said. He wants to see how it ends up helping the economy in the July through September period and worries about driving the budget deficit higher with a second plan.

But House Speaker Nancy Pelosi plans to have the House vote on additional aid when lawmakers return in September from their summer vacation. She believes more is needed to counter higher gasoline prices and other costs.

The economy is struggling to emerge from crises in the housing, financial and credit markets and cope with rising prices at the pump and grocery store. Paulson, in a television interview broadcast Sunday, asserted that the country's economic fundamentals are sound.

But asked about Bush's remark, the former Goldman Sachs chairman and chief executive acknowledged Wall Street has played a role in the current downtown, particularly in its borrowing and lending practices.

"Absolutely there's a lot of truth to what the president said. And in terms of Wall Street, there was too much leverage in the system and more leverage than was appropriate and more than people recognized, because the leverage came into the system in the form of highly complex, structured products, which were difficult to understand," Paulson said. "So there was excess leverage, excess complexity."

The president, in an unguarded moment, made the comment at a political fundraiser in Houston last month after asking members of the audience to turn off their video cameras. The request was ignored and a snippet wound up on a blog. The media was barred from the event.

"There is no question about it. Wall Street got drunk," the president said. "That's one reason I asked you to turn off your TV cameras."

"The question is, How long will it (take to) sober up and not try to do all these fancy financial instruments?"