http://news.yahoo.com/…

With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most — if not all — of next year.

The decision to hold rates near zero was widely expected. But the Fed’s plan to buy government bonds and the sheer amount — $1.2 trillion — of the extra money to be pumped into the U.S. economy was a surprise.

“The Fed is clearly ready, willing and able to be the ATM for the credit markets,” said Terry Connelly, dean of Golden Gate University’s Ageno School of Business in San Francisco.

Wall Street was buoyed. The Dow Jones industrial average, which had been down earlier in the day, rose 90.88, or 1.2 percent, to 7,486.58. Broader indicators also gained.

And government bond prices soared. Heralding a coming drop in mortgage rates, the yield on the benchmark 10-year Treasury note dropped to 2.50 percent from 3.01 percent — the biggest daily drop in percentage points since 1981.

The dollar, meanwhile, fell against other major currencies. In part, that signaled concern that the Fed’s intervention might spur inflation over the long run.

When the FED buys government bonds that is directly inflationary. If they don’t offset the printing of money through other means Wall Street will directly gain from this injection and we will all lose. Unless you are looking to get a mortgage.

http://globaleconomicanalysis.blogspot.com/…

Dear Mr. President, I read your New Era $3.6 Trillion Budget Proposal. I also listened to your speech Tuesday night. You made a great campaign speech. However, the campaign is over. You won. And the reason you won is you offered hope as well as a promise of change.

With all due respect Mr. President, Tim Geithner and Ben Bernanke are offering the same policies as President Bush and Secretary Paulson. Those policies are to bail out banks regardless of cost to taxpayers. Mr. President, it’s hard enough to overlook Geithner’s tax indiscretions. Mr. President, it is harder still. if not impossible, to ignore the fact that neither Geithner nor Bernanke saw this coming. Yet amazingly they are both cock sure of the solution. Even more amazing is the fact that solution changes every day.

Read More…

Grabbed from Mish’s Global Economic Trend Analysis blog:

Things are looking pretty bleak. There is bad news in housing, the stock market, commercial real estate, jobs, and wages . Unfortunately, no matter how bad things are, someone always comes along to propose a “solution” that is guaranteed to make the situation much worse. Please consider the following ideas.

Punish savers and make them spend money: Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively

Assuming interest rates are reduced to about 1 per cent today, it will make little difference to savers if they fall all the way to zero. To all intents and purposes, income from bank accounts will be reduced to nil.

The next logical step, although it may be politically controversial, would be to do the opposite of what the Tories suggest. Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets – or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.

The Case for Bigger Government

Thirty years ago, Americans were told that government was part of the problem, not the solution. We bet on the magic of the marketplace, but the magic proved illusory. Every major part of the economy – health care, energy, transportation, food and finance – is deeply troubled. Now we are ready to invite government back in to help solve our problems, if the price is right and the strategies are convincing. By spending more through government and treating government as a partner rather than an enemy of the private sector, we can potentially save vast sums in the long run through a more efficient health-care system, safer climate, more competitive economy and more secure country.

A big difference between the U.S. and the rest of the rich world is that for the past 30 years or so, Americans consistently rejected “government solutions” to the problems of health, poverty, education and the environment.

What Hath Big Government Wrought?

• It was big government that brought us Fannie Mae and Freddie Mac.
• It was big government that sponsored the war in Vietnam and the war in Iraq.
• It was big government that gave us nightmare problems we face with Medicaid and Medicare.
• It was big government that gave us overlapping hundred billion dollar systems in the Army, Navy, and Air Force.
• It is big government that sponsored 10’s of thousands of pork barrel projects and bridges to nowhere.
• It is big government that gave us the Davis Bacon Act and the insanity pf prevailing wages.
• It was big government sponsorship of the rating agencies that created the “AAA” rated securities that went to zero.
• It was big government that took us off the gold standard and illegally confiscated citizen’s money.
• It was big government that allowed fractional reserve lending and theft by inflation this is the root cause of a shrinking middle class today.
• It was big government that created the Fed, and it was the Greenspan Fed that blew serial bubble after bubble culminating in the housing crash we are in today.

Big government either created or made worse every problem we have today. Yet Time Magazine and free lunch proponents like Krugman propose an even bigger government is necessary to fix the enormous problems of an already too big government.

I’d like to add that the idea that “Americans consistently rejected “government solutions” to the problems of health, poverty, education and the environment” is completely fallacious and ridiculous. Medicare, medicaid, the war on poverty, from little or no federal involvement to No Child Left Behind, huge federal college subsidies, the increase of scope and power of the EPA, etc. Just because Americans didn’t jump on board as quickly as other socialist / fascist States doesn’t mean such ideas were rejected.

He’s a Paul supporter don’t-chah-know?

http://query.nytimes.com/…

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

…

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

It was obvious to just about everyone… yet Democrats in particular… the likes of Dodd, Clinton, Schumer, Reid, Obama, etc. endorsed and in several cases explicitly benefited from the Community Reinvestment Act, Fannie Mae and Freddie Mac.

The CRA was not the only or even the most important aspect which lead to the current crisis. Bad lending couldn’t have been sustained or would have been possible if not for the Federal Reserves incredibly low interest rates and market manipulation. The CRA was the vehicle which the rode the low interest wave to creating the boom.

• One page summary of the Emergency Economic Stabilization Act of 2008
• Section by section summary
• H.R. 3997: Emergency Economic Stabilization Act of 2008

Read and weep.

There are some other documents linked on the House Financial Service Committee site but at the time of posting they were dead

• On Housing Finance, the Difference between Democrats and Republicans Has Been Night and Day
• The Truth about the Community Reinvestment Act
• The Truth versus the Republicans on the Regulation of Subprime Mortgages and Fannie Mae and Freddie Mac

I imagine the Truth about the Community Reinvestment Act in particular is full of bullshit.

The Democrats want to distance themselves from the CRA as much as possible or spin it to look like it wasn’t a major contributor to the housing bubble. They are also looking to divert attention from the fact Fannie Mae was a major contributor to Obama as well as he chose former Fannie Mae CEO James Johnson, who was found to have cooked the books, to head his search for a vice president.