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.

Related posts:

1. Fed now accepting credit card debt as collateral
2. Inflation!? All right!!
3. What a bunch of horse shit!

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.

With all due respect Mr. President, Geithner and Bernanke are a huge part of the problem, and no part of the solution and the sooner you realize that the better off this nation will be.

With all due respect Mr. President, your budget proposal is the same big government spending as we saw under President Bush. The only difference is you promised more spending and bigger government, while President Bush promised less government and less spending and failed to deliver on either count.

With all due respect Mr. President, it is impossible to spend one’s way out of a problem, when the problem is reckless spending.

With all due respect Mr. President, you and Congress want to force banks to lend when banks (by not lending) are acting responsibly for the first time in a decade. Mr, President can you please tell us who banks are supposed to lend to? Do we need any more Home Depots? Pizza Huts? Strip malls? Nail salons? Auto dealerships? What Mr. President? What? And why should banks be lending when unemployment is rising and lending risks right along with it?

With all due respect Mr. President, we were hoping your administration would not carry on the war mongering policies of your predecessor. Instead we see amazingly that you Seek $75.5 Billion More for Wars in 2009. Mr. President, do we really need another $75 billion for wars? Was there nothing in the military budget that could be cut?

With all due respect Mr. President, The United States spends more on its military budget than the next 45 highest spending countries in the world combined; The United States accounts for 48 percent of the world’s total military spending; The United States spends on its military 5.8 times more than China, 10.2 times more than Russia, and 98.6 times more than Iran. Isn’t that enough Mr. President?

With all due respect Mr. President, the downfall of every great nation in history has been unsustainable military expansion. Mr. President, the US can no longer afford to be the world’s policeman. You act as if we can. Mr. President, can you please tell us how we can afford this spending?

With all due respect Mr. President, Fannie Mae Reported A Fourth Quarter Loss Of $25.2 Billion. Can you please tell us where you draw the line on taxpayer bailouts of Fannie Mae? Freddie Mac? AIG? Mr. President is there a line anywhere, on anything? If there is, we would appreciate knowing where it is.

With all due respect Mr. President, how can you talk about reducing the budget deficit while proposing the biggest budget in history?

With all due respect Mr. President, how is it possible to talk about reducing health care costs while proposing to increase the health care budget?

With all due respect Mr. President, you have talked about “hard choices”. Can you please tell us what hard choices you have made other than to throw money at every problem? Sure a few programs have changed but Bush orchestrated the biggest Medicaid/Medicare package in history and you upped it. You upped military spending. You criticized McCain for cutting programs that amount to peanuts, and all you can find to cut out of the budget is peanuts.

With all due respect Mr. President, your “Era of New Responsibility” is nothing more than a continuation of the Bush administration Era of Irresponsibility. Mr. President, we hoped for more and deserved more. Yet, behind the charade of campaign messages of hope and change, we essentially see the same fiscal irresponsibility and misguided policies as before. Oh sure Mr. President, your budget priorities have shifted a bit, sadly the irresponsible spending did not.

I would have left out all the “with all due respects.” The man isn’t due any respect. No point in implying he is. You need to show some respect first and his actions have shown us he does not respect us or our family or the future generations.

Related posts:

1. President of the New York Federal Reserve Bank advocates global bank framework
2. $490 billion
3. Rather scary propositions

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.

Related posts:

1. With all due respect?
2. Goldman Sachs Chief U.S. Economist: turn on the printing press!!
3. Slowdown could have been avoided says idiot economist

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

Related posts:

1. Jim Rogers on CNBC calls Fannie / Freddie bailout socialism for the rich
2. Fannie / Freddie Bailout Drawing Near
3. Video from the press conference unveiling the takeover of Freddie and Fannie

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.

Related posts:

1. The oh so statist New York Times
2. Fed expands borrowing program
3. More on the New York Times spoof

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.

Related posts:

1. Senate passes H.R. 1424 (previously H.R. 3997) Emergency Economic Stabilization Act of 2008
2. House of Representatives passes H.R. 1424 Emergency Economic Stabilization Act Senate Amendment
3. Didn’t realize exempting wooden arrows from excise tax was an emergency economic stabilization method

McCain may have sponsored that bill but it’s not like he understood exactly why or what the result would ultimately be. Ron Paul had been trying to change the CRA and was explaining what would occur if it didn’t change.

Even though this is a fairly infamous bill and was one of the Clinton administration’s pride and joys most people I speak with have never heard of it or understand what it did. That combined with low interest rates, devaluation of the dollar, Fannie / Freddie mess, etc. set up for the perfect storm.

Related posts:

1. U.S. senators have deal on housing rescue bill
2. New York Times in 1999 reported on possible problems with the Community Reinvestment Act
3. Ron Paul speaks about Housing bill

The events taking place in the financial market offer an illustration of the soundness of the Austrian theory of money, banking, and credit cycles, and Mises.org is your source not only for analysis of these events but also the economic theory that helps explain what is happening and what to do about it. There are many thousands of articles available, and also the full text of thousands of books as well as journal articles. It is impossible to draw attention to the full range of literature one can use to understand the crisis.

However, below we offer a brief look into the topics most discussed in these times, with extended treatments of each in the sidebar. Mises.org also offers both a blog and a community forum for reading and discussing them all.

It’s never been more important to spread a sound view of money and banking, not only as a protection against the fallacies of “stabilization” and “reflation” but also as way to see what kind of reforms are essential now.

Fannie Mae and Freddie Mac

• Freddie Mac: A Mercantilist Enterprise, by Paul Cleveland, March 14, 2005
• Fannie Mae: Another New Deal Monstrosity, by Karen De Coster, July 2, 2007
• How Fannie and Freddie Made Me a Grumpy Economist, by Christopher Westley, July 21, 2008
• Who Made the Fannie and Freddie Threat? By Frank Shostak, March 5, 2004
• Are Fannie and Freddie Too Big to Fail? By Frank Shostak, September 17, 2008
• Fannie Mae Distorts Markets, by Robert Blumen, June 17, 2002

The Housing Bubble

• The Real Cost of a Full Bailout, by Don Rich, August 22, 2008
• The Subprime Mortgage “Crisis” Will Fix Itself, by Steve Berger, May 30, 2007
• Did the Fed Cause the Housing Bubble? By Robert Murphy, April 14, 2008
• The Mortgage Market Mess, by Christopher Westley, May 17, 2007
• Housing Bubble: Myth or Reality? By Frank Shostak, March 4, 2003

Inflationary Finance

• What’s Behind the Financial Market Crisis? by Antony Mueller, September 18, 2008
• Our Financial House of Cards, by George Reisman, March 25, 2008
• Will Central Bankers Become Central Planners? by Robert Blumen, July 31, 2008
• Inflation is a Policy that Cannot Last, by Thorsten Polleit, March 14, 2008
• The Widening Safety Net, by Christopher Mayer, March 19, 2004
• The Fed’s New Tricks Are Creating Disaster, Frank Shostak, March 18, 2008
• The Fed’s War on the Middle Class, by Mark Thornton, June 4, 2008.

Community Reinvestment Act

• The CRA Scam and its Defenders, by Thomas DiLorenzo, April 30, 2008
• Regulatory Sneak Attack, by Thomas DiLorenzo, September 16, 1999

Short Selling

• Short-Sale Restrictions Are an Exercise in Naked Power, by Robert Murphy, August 11, 2008
• The Social Function of Futures Markets, Robert Murphy, November 29, 2006
• Don’t Sell Short Selling Short, April 6, 2007

The Austrian Theory of the Business Cycle

• The Idiocy of Wall Street, by Don Rich, September 24, 2008
• The Fed is Culpable, by Hans F. Sennholz, November 11, 2002
• Skyscrapers and Business Cycles, by Mark Thornton, August 23, 2008
• Economic Outlook 2008: Darkening Clouds, Dominick Armentano, January 2, 2008
• Business Cycle Primer, Llewellyn H. Rockwell, Jr. February 8, 2001
• Economics Depressions: Their Cause and Cure, by Murray Rothbard

Who Predicted This?

• The Financial Apocalyptics are Back, Robert Blumen
• Sowing the Seeds of the Next Crisis, Thorsten Polleit, April 25, 2006
• Credit Crisis: Precursor of Great Inflation, by Thorsten Polleit, February 7, 2008
• Mr. Bailout, by Anton Mueller, September 30, 2004
• America’s Unsustainable Boom, by Stefan Karlsson, November 8, 2004
• Who Predicted the Bubble? Who Predicted the Crash? By Mark Thornton, July 14, 2003

What To Do

• Don’t Bail Them Out, by Llewellyn H. Rockwell, Jr., September 10, 2008
• How to Avoid Another Depression, by Mark Thornton, September 10, 2008
• Taking Money Back, By Murray N. Rothbard, June 14, 2008
• Beware the Alchemists, by Ludwig von Mises, February 3, 2006
• Reflation in American History, by H.A. Scott Trask, October 31, 2003
• Money and Freedom, by Joseph Salerno, February 2, 2002
• The Case for a Genuine Gold Dollar, by Murray Rothbard

Books to Distribute

• The Theory of Money and Credit, by Ludwig von Mises
• America’s Great Depression, by Murray Rothbard
• The Mystery of Banking, by Murray Rothbard
• Prices and Production, by F.A. Hayek
• Causes of the Economic Crisis, by Ludwig von Mises
• Austrian Theory of the Trade Cycle and Other Essays, Ludwig von Mises et al.
• Understanding the Dollar Crisis, by Percy Greaves
• The Case Against the Fed, by Murray Rothbard
• Money, Bank Credit, and Economic Cycles, by Jesus Huerta de Soto
• History of American Currency, by William Graham Sumner
• Banking and the Business Cycle, by C.A. Phillips
• Fiat Money Inflation in France, by Andrew Dickson White

Related posts:

1. H.R. 3997: Emergency Economic Stabilization Act of 2008
2. Senator Jim Bunning Calls on Paulson and Bernanke to Resign
3. The all powerful Treasury Secretary Henry Paulson speaks

Update: CNN’s coverage of the event, some photos

So why did I choose the wrong rally? From LewRockwell.com/blog:

Writes Jim Sheehan: “I just walked by the New York Stock Exchange. Hundreds of demonstrators have gathered to protest the government’s bailout of Wall Street. Several were holding placards that read ‘Stop the bailout! Read The Road to Serfdom by FA Hayek. Read mises.org.’ They were also handing out copies of Ron Paul’s 2002 speech introducing his bill to eliminate subsidies to Fannie Mae and Freddie Mac. Keep up the good work!”

I’m not sure where this was advertised but the NYC Campaign for Liberty Meetup.com event listed the Bowling Green but I didn’t notice anyone familiar when I showed up at 4PM. Oh well. Hopefully some of those who I handed info to will actually read one of the suggested books. If it’s one thing many of those lefties need is an overview of economic theory.

Related posts:

1. Jim Rogers on CNBC calls Fannie / Freddie bailout socialism for the rich
2. NYC Grand Central Rally
3. Not content with leaving the burning corpse that is the economy alone, Pelosi calls for new “economic stimulus plan”

Some key parts:

When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.

Concise and to the point. On the front page of CNN. Not bad.

Related posts:

1. Ron Paul grills Bernanke on business cycle cause
2. The all powerful Treasury Secretary Henry Paulson speaks
3. Federal Reserve sets target rate to near zero