From Bloomberg.com (emphasis added):

July 31 (Bloomberg) — The Federal Reserve will be able to lend more easily to failed banks under government control because of a provision in legislation that bailed out Fannie Mae and Freddie Mac.

In the rescue signed into law by President George W. Bush yesterday, the Fed will no longer have to pay penalties on loans it makes to institutions taken over by the Federal Deposit Insurance Corp.

The measure may mean more use of the central bank’s balance sheet to prop up the U.S. financial system, after the Fed began lending to investment banks in March, analysts said. The FDIC has taken over seven banks this year, with 90 on a watch-list of troubled firms as lenders are hit by the surge in credit losses.

“We are pushing forward the line on what the government will backstop, and what the Federal Reserve will backstop,” said Vincent Reinhart, former director of the Fed’s Monetary Affairs Division who is now at the American Enterprise Institute in Washington…

The Federal Reserve Act’s Rule 10B penalizes the Fed for loans to undercapitalized institutions exceeding specific time periods. The original provision was aimed at preventing the central bank from keeping failing banks open.

FDIC Request

The exemption in the new law, which was requested by the FDIC without objection by the Fed’s Board of Governors, was aimed at making clear that once banks are taken over by the FDIC, capital rules no longer apply because they are effectively owned, operated and in liquidation by the government…

For some, the exemption opens up the Fed to more political pressure to lend to government agencies, instead of forcing Congress, the FDIC, or the Treasury to explain to taxpayers why they need more money.

“Once the Fed starts lending to a bridge bank, or indirectly to the FDIC, where is the incentive to ever stop?” said Walker Todd, a former Cleveland Fed attorney and visiting research fellow at the American Institute for Economic Research in Great Barrington, Vermont.

The FDIC had $52.8 billion in its deposit-insurance fund as of March 31. The FDIC could raise more money by tapping a $40 billion credit line it has with the U.S. Treasury, increasing assessments on its members, or turning to Congress…

‘Costly and Difficult’

“Why should they be doing it?” said Robert Eisenbeis, former Atlanta Fed research director and now chief monetary economist at hedge fund Cumberland Advisors LLC. “The whole idea” of the rules in the Federal Reserve Act is “to make it costly and difficult to support an insolvent institution.”

This month, the Fed board voted unanimously to allow direct lending to government-sponsored housing agencies Fannie Mae and Freddie Mac “should such lending prove necessary,” at the request of U.S. Treasury Secretary Henry Paulson.

The bailout continues… Why can’t the FDIC raise its fees according to the risk that each member bank holds? The more leveraged the bank, the higher it costs them to participate in the program? Send in the auditors!

Economist Joe Stiglitz comments in the Financial Times, criticizing Fannie’s and Freddie’s free lunch, but ultimately takes a middle of the road approach.

The NYTimes claims that the Housing Bill Has Something for Nearly Everyone. (What, the check to pay for this thing? How about renters? If we miss a rent payment, we are liable to be EVICTED. Where is our bailout?)

Bloomberg reports that mortgage writedowns will total $1 trillion. (Article quotes a hair brained scheme where the gov’t buys millions of houses and then blows them up to help brace housing prices. At this point, I’m not sure who’s being sarcastic and who’s not. But seriously, if you wanna to see something really blowup, watch that gross national debt ticker, over on the right, after this bill passes.)

Former Republican House Majority Leader, Dick Armey blasts the Republican party in the Wall Street Journal. He advocates a five year phase out of either GSE should they access credit lines from the Federal Reserve or Treasury.

More to come…

http://www.bloomberg.com/…

Federal Reserve Chairman Ben S. Bernanke said risks to both U.S. growth and inflation have increased, abandoning officials’ June assessment that threats to the expansion had “diminished somewhat.”

There are “significant downside risks to the outlook for growth,” and “upside risks to the inflation outlook have intensified,” Bernanke said in semiannual testimony on the economy to the Senate Banking Committee in Washington.

Bernanke cited higher energy prices, reduced access to credit and a further deepening in the housing recession as dangers to growth. At the same time, he said: “We must be particularly alert to any indications, such as an erosion of longer-term inflation expectations, that the inflationary impulses from commodity prices are becoming embedded” in wages and prices.

ARGH. Way to pass the fucking buck. I’ll let Lew Rockwell speak for me:

It’s hard to be shocked at a lying federal official, but to see the head inflator, Ben Bernanke, warning the senate about inflation as if it were some extraneous force of nature is laughable. [Quoting above]

In other words, the Fed - the government agency created to inflate, and the only source of inflation - is keeping an eye on the wayward private sector, in case foolish people wake up to the Fed’s schemes, and realize they have engineered very high inflation indeed, at the same time as they have engineered a global depression, and prices zoom as the economy falls of the edge. In that case, it will be essential - from DC’s standpoint - to blame business people and consumers, so as to divert attention from their criminal selves. It is our job not to let them get away with it.

The Bloomberg article continues:

Retail sales rose 0.1 percent from the previous month, the Commerce Department reported today, less than economists forecast. Producer prices jumped 1.8 percent, the most since November, the Labor Department said. From a year ago, prices climbed 9.2 percent, a surge unseen since 1981.

Fed governors and district bank presidents now see the economy expanding 1 percent to 1.6 percent this year, up from 0.3 percent to 1.2 percent in their April outlook. Consumer prices will rise 3.8 percent to 4.2 percent this year compared with a projected range of 3.1 percent to 3.4 percent in April. The economy should expand at a 2 percent to 2.8 percent rate in 2009, identical to the April forecasts.

9.2%

Anyone reading this expecting to get a >= 9.2% raise this year?

Not all this turmoil is lost on the public thankfully. I’ve gotten a chance to rant about the Federal Reserve and this economic setup, with an actual attentive audience, more often then I’ve in the past. In fact my boss was talking about picking up something to better understand the Federal Reserve System. I’m going to bring in a copy of The Case Against the Fed by Murray Rothbard. Maybe I’ll be able to get it passed around the office. It’s a pretty quick read and given the urgency which people likely feel concerning this situation it may not be a difficult sell.

Part 2, Part 3

http://ronpaul2008.typepad.com/…

With the results of many of the “Super Tuesday” primaries and caucuses now finalized, the Ron Paul campaign is now projecting that it has at least 42 delegates to the national convention secured.

While much of the focus in yesterday’s Super Tuesday contests focused on preference poll numbers, Ron Paul caucus-goers were focused on securing delegates to the national convention.  With dedicated supporters and an organization focused purely on securing delegates, the campaign has secured more delegates to the national convention in Minneapolis-St. Paul than caucus straw polls might otherwise suggest.

According to campaign projections, a minimum of 24 delegates were won in yesterday’s contests.  When added to projected delegates coming from strong showings in Iowa (4), Nevada (8), Louisiana (3) and Maine (3), that brings the total delegate count to 42 delegates or more.

“Our goal has always been to walk into the national GOP convention with as many delegates as possible,” said Ron Paul 2008 campaign manager Lew Moore.  “The number of delegates we won yesterday could very well be the difference in a Convention where no one has a first-ballot majority.  With Dr. Paul’s home state of Texas coming up, we feel we can enter the convention with a substantial number of delegates.”

In an agreement first reported by West Virginia television station WSAZ, three Ron Paul delegates were secured through an agreement with the Mike Huckabee campaign at the West Virginia state convention early Tuesday.  Ron Paul delegates to the state convention swung their sizable support to Huckabee – putting Huckabee over the top – in exchange for the delegates.

According to campaign projections from last night’s results at least 3 delegates were won in Alaska, 5 delegates were won in North Dakota, 9 delegates were won in Minnesota, and 4 delegates were won in Colorado.

Additionally the results of the Louisiana Caucus may still change in favor of Ron Paul, where an ongoing legal challenge may result in most of that state’s delegates going towards Ron Paul after state GOP officials violated their own rules to improperly put delegates from other campaigns on the ballots.

Still 4th of 4 but we could pick up enough to force a brokered convention. Nick Bradley over at LRC has an interesting and optimistic projection.

1. After all the delegates are allocated in California, McCain will have well over 700 delegates; he won all but two of the counties (lost by a hair to Romney in Fresno and Shasta), so he should get all 173 delegates. In order to secure the nomination, he’ll need about half of the remaining 1,035 delegates, an unlikely feat.

2. As a result of the delegate reality for McCain, he will take Huckabee onto his ticket at a brokered convention that turns out to be little more than a formality. As the delegate count currently stands, McCain-Huckabee needs less than 300 delegates out of the remaining 1,035 to secure the nomination, less than 30%. I cannot envision any scenario where Paul and Romeny score enough delegates over the rest of the primaries to prevent a McCain-Huckabee majority.

3. If Huckabee has not already agreed to accept McCain’s VP slot, he will do so in a heartbeat. First, I have read repeatedly that McCain has made a private pledge to serve only one term, giving Huckabee a cleared field for 2012 if McHuckabee wins in November. If McHuckabee loses (which it probably will), Huckabee is “alive” for 2012, just like Edwards was for 2008 despite being out of office; Huckabee can go around the counrty for four years, extolling the virtues of the FairTax (during a severe recession, no less) and building grassroots support for a 2012 run.

4. Many conservatives will absolutely revolt over a McCain-Huckabee ticket, and will sit out the general or become suicide voters” and pull the lever for the democrat. This conservative angst, however, provides an excellent opening for a true conservative in the Goldwater-Taft mold to lead the exodus out of the party — Ron Paul. And if Hillary, who most democrats see as generally pro-war, is the democratic nominee, many of them will throw their lots in with the disgruntled conservatives and support Paul. Under such a scenario, Paul should have enough support get into the debates and take home a sizable chunk of the vote in Nobember. If Bloomberg jumps in and slices off the nanny state vote, probably split 60-40 to Hillary over McCain, Paul may even have a chance at winning. At this point, there aren’t many other options left.

I’m not sure if that or a 3rd party run starting after February makes more sense. Without knowing if Bloomberg or Nader will run it’s hard to decide. A 3rd party Paul run could pick up a decent chuck of votes but I doubt the 18% that Perot was able to get. The problem is time. By the time the R’s pick their guy the L’s will have chosen theirs. At that point I’m sure it’s too late to get yourself on the ballots anyway. I want to be able to vote for Paul in the general election… I just don’t know whether the almost guaranteed ballot access of the Libertarians is worth giving up the possible brokered convention where the revolution’s message could be argued at length and could grow the RLC and the libertarian wing of the party. While I appreciate what 3rd parties do and myself a member of the local Manhattan Libertarian Party, I believe given the current political state of affairs the path of least resistance for shrinking the state is by utilizing one of the two major parties. That or facilitate the Republican party’s downfall and absorb into the Libertarian party the libertarian wing or create a new liberty oriented party from it. That would allow traditional Reagan like conservatives from the LP to join that party and the LP could become what the Radicals want it to be.

http://www.freestateproject.org/libertyforum/

• It’s cold. A very very dry 7°F. Snow plowed 4-5 feet high on some roads.
• Ran into Chris from NH again. Same guy xyz and I ran into in Manchester during the Ron Paul Family Walk and at the Ron Paul Philadelphia rally. I hadn’t realized that he was part of those running the Liberty Forum. It’s great to see people so dedicated.
• Got to meet Ian Bernard and Mark Edgington of Free Talk Live, FreeKeene.com and Keene Weekly News. Nice to meet those who you donate money to even if only briefly while they grabbed some finger food before they went on to do their show. I really enjoy their show… but they really need a tech guy on the show. If I move up to NH maybe I could participate in the show.
• Chatted with George Phillies, Libertarian candidate for POTUS for 10+ minutes. A bit awkward given I was wearing my Ron Paul Revolution T-Shirt and xyz had a Ron Paul 2008 pin on her coat. We talked about the 2008 race in general, the Libertarian candidates in general, how Kubby and Smith are supporting Ron Paul, Unity08 and Bloomberg’s possible run, how to get some of the Ron Paul Revolution’s people and money into the Libertarian Party and all the hubbub on the LP’s planks. We got a photo of xyz and Mr. Phillies.
• Purchased Gardner Goldsmith’s new book Live Free or Die and had it signed. Sakal/CAI has a raffle going for those who bought Gardner’s book for an iPod. We’ll see if I won by Monday.
• Dave Ridley is here putting together another episode of his Ridley Report.
• Also very briefly met Bernard von NotHaus. Didn’t get to talk about anything however.
• It was really a meet and greet type environment tonight. There are about 300 or so currently signed up for the Forum. I’ll be taking notes the next couple days and will report if I continue to have Net access.