http://www.nytimes.com/…

The Federal Reserve said Wednesday that it was extending its emergency borrowing program to Wall Street firms and was taking other steps to ease a tight credit market that has hobbled the national economy.  

The Fed said the program, where investment houses can tap the central bank for a quick source of cash, will be available through Jan 30. Originally the program, started on March 17, was supposed to last until mid-September.

Another program, where investment firms can temporarily swap more risky investments for super-safe Treasury securities also will continue through Jan. 30, the Fed said. And, it also will let commercial banks, in a separate program, be able to bid on cash loans that last longer — for 84 days, besides the 28-day loans now available.

The Fed said it was taking these steps “in light of continued fragile circumstances in financial markets.” The Fed said that the emergency borrowing program for investment houses and the program that lets investment firms temporarily borrow Treasury securities would be withdrawn should the Fed determine that conditions in financial markets are “no longer unusual and exigent.”

Starting Aug. 11, the Fed will give banks the option of bidding on 84-day cash loans from the Fed, besides the 28-day loans now available. Specifically, the Fed will conduct biweekly auctions. They will alternate between making available $75 billion in 28-day loans and $25 billion in 84-day loans. The steps expand a program started in December aimed at helping banks overcome their credit problems so that they can keep lending to customers.

The European Central Bank and the Swiss National Bank have informed the Fed that they also will make available to their banks similar 84-day cash loans. The Fed also increased its credit line with the European bank to $55 billion from $50 billion.

And the market rallies to the beat of their own destruction.

And in other news to rally against: Bush signs law to ‘help’ homeowners, Freddie and Fannie

President George W. Bush signed into law legislation that helps 400,000 homeowners facing foreclosure and extends a lifeline to Fannie Mae and Freddie Mac.

Bush signed the measure at the White House shortly after 7 a.m., spokesman Tony Fratto said. Treasury Secretary Henry Paulson, Housing and Urban Development Secretary Steve Preston and Federal Housing Administration Director Brian Montgomery were among those present.

“We look forward to putting in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac,” Fratto said.

The law is aimed at stemming foreclosures and halting a free-fall in housing prices by providing federal insurance for refinanced 30-year mortgages for homeowners struggling to make their monthly payments.

The measure also is designed to restore confidence in Fannie Mae and Freddie Mac by tightening regulations and authorizing the Treasury secretary to inject capital into the two biggest U.S. providers of mortgage money.

The Treasury chief, who was the lead lobbyist for the White House, persuaded Bush to back off a threatened veto over a section of the legislation that provides $3.9 billion in grants to states to buy and repair foreclosed properties. Bush said he regarded it as a bailout of lenders. Democrats said it would stabilize neighborhoods.

I think if they want to raise the prices of homes they should scrap this grants for buying and repairing properties and just blow up the homes on them. It’d be cheaper to the tax payers and the increase in scarcity will push up prices. Just like they’ve been doing with farmed products since the Great Depression.

Good news on the AP wire from DC (emphasis added):

WASHINGTON, May 19 (Reuters) - Leaders of the U.S. Senate Banking Committee said on Monday they had reached a deal on legislation to create a multibillion dollar mortgage rescue fund and a new regulator for housing finance companies Fannie Mae and Freddie Mac.

The plan would enable the Federal Housing Administration to guarantee billions of dollars in refinanced mortgages for homeowners whose properties have fallen in value since they took out their loan.

“The bill addresses the root of our current economic problems — the foreclosure crisis — by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes,” Democratic Sen. Christopher Dodd, the committee’s chairman, said in a statement…

“This is a victory for the taxpayers. As far as the housing component is concerned, we’re not funding this… with taxpayers’ money,” Alabama Sen. Richard Shelby, the panel’s top Republican, said on CNBC.

A quick google news search brings up another source with even more info on the planned bill.

Read More…

http://www.usatoday.com/…

Some homeowners with risky “subprime” adjustable-rate mortgages will be able to refinance before they lose their home to foreclosure, with the help of steps President Bush will announce Friday, senior administration officials said Thursday night.

An estimated 80,000 homeowners with bruised credit and subprime ARMs they can no longer afford will be able to refinance loans, which the Federal Housing Administration (FHA) would insure.

The move marks a historic expansion of the role of the FHA, a Depression-era agency that has traditionally served low- and moderate-income families and first-time buyers, but not delinquent borrowers. Nearly 16% of subprime borrowers are behind on their ARMs, and an estimated 2 million subprime ARMs totaling about $600 billion will reset to higher rates through the end of next year.

The senior officials avoided using the word “bailout,” but the plan is sure to incite critics.

“If you’re going to help someone to refinance, you’re going to bail out the person who financed him in the first place,” Peter Wallison of the American Enterprise Institute said Thursday night. “This will only cause the problem to arise again.”

Wallison said the lenders who provided the financing in many of these cases likely knew that the borrowers couldn’t meet the financial obligations of the loan.

“If we’re going to allow (lenders) to be refinanced out, what we’re doing is saving them from their own greed. … It might be good politics, but it’s very bad policy.”

In another bold step, Bush will propose a temporary change in tax law. It would let homeowners avoid taxes on forgiven debt if a lender agrees to alter the terms of a loan.

All investments, all actions contain risk. How do you justify the federal government and Federal Reserve bailing out both those who make the risky investments? If I invested in SCO years ago would the government back me up because of my poor choices? Of course they won’t. But it seems that if some large mortgage companies and investment firms make bad investments the government will. And it only makes things worse. The large private firms will only take larger risks if they have less true risk because they know the government will bail them out when the shit hits the fan as it did a few weeks ago. The public primarily pays for these bail outs through our taxes and we also pay through the drop in the market in our 401K’s and other investments. The investors should be completely responsible for their investments. If they screw up and the market goes apeshit then it goes apeshit. That’s just how it goes.