http://www.forbes.com/…

Despite these steps, more is needed. We must now take further decisive action to fundamentally and comprehensively address the root cause of our financial system stresses.

To restore confidence in our markets and our financial institutions so they can fuel continued growth and prosperity, we must address the underlying problem.

OH OH! So the Federal Reserve is going to be dismantled?! Remove regulations which are only show or there to help those at the top already?

And this morning, we’ve taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guarantee program for the U.S. money market and mutual fund industry.

The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

First, to provide critical additional funding to our mortgage markets, the GSEs Fannie Mae and Freddie Mac, will increase their purchases of mortgage-backed securities. These two enterprises must carry out their mission to support the mortgage market.

Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program we announced earlier this month. This will complement the capital provided by the GSEs, it will help facilitate mortgage availability and affordability.

These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for the purchase by the GSEs or by the Treasury program.

I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our financial system. When we get through this difficult period - which we will - our next task must be to improve the financial regulatory structure so that these past excesses do not recur.

This crisis demonstrates in vivid terms that our financial regulatory structure is suboptimal, duplicative and outdated. I have put forward my ideas for a modernized financial oversight structure that matches our modern economy and more closely links the regulatory structure to the reasons why we regulate.

Damn! No.

More artificial risk reduction. This will only continue the distortion price signals and cause more malinvestment. More regulation that will either further enrich Wall Street at the expense of those on Main Street or will stifle their ability to do what they need to do.

Q: Mr. Secretary, what is the alternative here? What is the dire picture you painted for members of Congress last night to try and convince them to support this effort? What is the alternative?

PAULSON: This is what we need to do. Because for some time we’ve been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets.

We’ve worked with Congress on a number of the steps, all of which were important, leading up to this. But this is the way we stabilize the system and get at the root cause.

The root cause is central control of the economy. Something every American child is taught is a bad thing. Look at what happened to those evil commies. While the message we received was hyperbolic it’s has some truth. Central control isn’t only inefficient. It’s an inherently flawed system doomed to failure. These neo-Keynesians just won’t give up on their desire to control or antiquated theories. I saw Obama talking about how the fundamental reasons for this crisis include: not spending enough on infrastructure, not spending enough on education, not spending enough on labor (wages), not taxing the rich enough, etc. Just because you spend capital on something does not mean it’s good. It does not mean that’s what should be done. It does not mean you’ll receive a positive capital growth from the deal. The cost of education has doubled in real dollars since the 1970’s with at best a static result. The fundamental problems are the distortions of the pricing signals due to regulation and primarily the Fed’s interest rate and money supply manipulation. If you make debt cheap, or give it away like it is now (interest < price inflation), individuals will fall into the moral hazard trap and over estimate. They will over consume. Over invest. The illusion of wealth furthers the problem.

I wonder what could be the best practical policy to get this information out. I’m not looking to turn everyone into economists… I just want the to recognize something I think everyone does to some degree but stops short of applying it equally across others and the market as a whole. Perhaps just putting Henry Hazlitt’s Economics in One Lesson [pdf] in public places with Rothbard’s The Case Against the Fed [pdf] sprinkled about would help? I think after the recent happenings people would be happy to read through one of these while waiting for the doctor instead of reading People.

Not given nearly enough time… not that it would have made a difference unfortunately.

According to the TimesOnline, the US Treasury Secretary is looking into a $15 billion dollar cash injection for crisis-hit mortgage lenders Fannie Mae and Freddie Mac.

The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.

Together, the two stockholder-owned, government-sponsored companies own or guarantee almost half of America’s $12 trillion home-loan market and are vital to the functioning of the housing market.

The capital-injection plan is said to be high on a list of options being considered by regulators as a means of restoring confidence in the lenders. The move would protect the American housing market, but punish shareholders in both companies.

Under the terms of the proposed move, the US government would receive a new class of shares in exchange for the capital, which would be hugely dilutive to shareholders.

[snip]

David Buik, partner at BGC Partners, said: “These agencies are the backbone of financial society in the US. They simply cannot be allowed to fail, and the government won’t allow them to fail. Whatever the solution is to this problem, I can’t imagine it will be good for shareholders.”

Remind me again why I would want to invest in FNM or FRE when the gov’t may pull shit like this at any time? How can anyone claim that these two entities aren’t indirectly nationalized when they are not “allowed to fail”? Cue that analogy comparing capitalism without failure and religion without hell.