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The government has formulated a plan to put troubled mortgage giants Fannie Mae and Freddie Mac under federal control, dismiss their top executives, and use government funds to prop them up, government officials told the two companies yesterday, according to sources familiar with the conversations. Under the plan, the federal government would place the firms in a legal state known as conservatorship, the sources said. The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government. As the pace...

JACKSON HOLE, Wyo., Aug 21 (Reuters) - Federal Reserve Chairman Ben Bernanke tackles financial stability in a key speech on Friday but economists doubt he will provide solid clues about future policy action to calm the credit crunch. [snip] This time last year, Bernanke told the conference the Fed would take steps to shield the economy from the U.S. housing collapse, but would not bail out investors. Since then, the Fed has slashed interest rates and lined up billions of dollars in emergency credit to prevent markets from seizing up over mountainous home loan losses. But conditions remain strained. "I...

Tuesday, August 19th, 2008 Exclusive Interview: Jim Rogers Predicts Bigger Financial Shocks Loom, Fueling a Malaise That May Last for Years [The First of Two Parts.] Keith Fitz-Gerald Investment Director Money Morning/The Money Map Report VANCOUVER, B.C. – The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning. Indeed, the U.S. financial debacle...

U.S. productivity remained elevated in the second quarter despite a sluggish economy and weak manufacturing, making it easier for Federal Reserve officials to balance risks to both economic growth and inflation while holding interest rates low. Labor costs, meanwhile, slowed markedly, suggesting high energy prices have not triggered the kind of wage-price spiral that bedeviled policymakers in the 1970s and early 1980s. Meanwhile, inventories held by U.S. wholesalers continued to rise in June, growing nearly twice as much as expected although climbing at a slower clip than sales, a government report released Friday said. Nonfarm business productivity increased 2.2%, at...

A Word Here, A Word There BY FRANK BARBERA, CMT What a ridiculous sham. Every few weeks the financial community ‘heart beat’ stops for a few seconds to find out what pronouncements will be handed down from the mount at the latest Federal Reserve meeting. Every few weeks, the parsing begins dissecting each word to see if anything has been omitted, or added, or changed from the prior meeting's text. Immediately, all kinds of wild trading ensues, in some cases, even before any sane person has had a chance to read and digest the intended meaning of the words. It...

More banks and financial institutions could end up being bailed out by governments before the credit crisis is over, Alan Greenspan, the former chairman of the Federal Reserve, warns in an article in Tuesday’s Financial Times. However, Mr Greenspan cautions that a heavy-handed regulatory response to the crisis would do more harm than good because it would depress global share prices. He worries that governments, already troubled by inflation, might try to reassert their grip on economic affairs. “If that becomes widespread, globalisation could reverse, at awesome cost,” he says. The former Fed chairman says this financial crisis is a...

Our housing finance system has been broken for quite some time, creating perverse incentives for borrowers and lenders....a major financial bailout of the system is probably inevitable. Conservatives can rightly argue that had Congressional Democrats not blocked the various initiatives of the Bush administration to reform Fannie Mae and Freddie Mac for the past five years, we would not be sitting at the precipice like we are today. First, Congress rejected a proposal that Fannie and Freddie be barred from paying dividends if they are receiving injections of capital from the federal government. Freddie Mac paid $1.6 billion in dividends...

Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year old credit crisis took a persistent toll, while the commercial paper market continued to contract, signaling tough conditions for short term borrowers. Banks' primary credit borrowings averaged $17.45 billion per day in the latest week, the second straight week this had hit a record and up from $16.38 billion the previous week, Fed data showed on Thursday. "It shows there's a shortage of liquidity in the system," said Christopher Low, chief economist at FTN Financial in New York. Secondary credit the Fed...

The Securities and Exchange Commission voted to extend the temporary rules it put in place to restrict short-selling of a handful of financial stocks. The SEC commissioners didn't take additional steps opposed by Wall Street to expand the number of stocks affected by the rules or make them permanent. The temporary rules were set to expire Tuesday, and the SEC extended the order on the 19 stocks until Aug. 12. It won't be extended beyond then. In a short sale, a trader sells borrowed stock in a bet the price will decline and the stock can be profitably repurchased at...

25 signs of insolvency. ... And what can't be paid back will be defaulted on. If you didn't know it before, you do now: The entire US banking system is insolvent.

<p>Concern is growing over the present instability of financial markets among senior officials at the Bank of England and the US Federal Reserve.</p> <p>The Bank of England’s Governor meanwhile sounded a warning last night that markets and the global economy may be set for a period of greater turbulence triggered by rising interest rates around the world.</p>

Worst Case ScenarioBy John RileyChief Strategist07/15/08 What a year - bank and brokerage failures, Federal bailouts, sub-prime mortgage mess and a looming derivative disaster. What would happen if things continue to unravel? What would that look like?Runs on the BanksWith the failure of IndyMac, we’ve already seen a run on a bank force its closure. What if a few more banks had runs? Depositor panic could cause runs at several banks that are on the edge of failure. A run could push them over. The FDIC is spending about 10% of its reserves on bailing out IndyMac. How many more...

"Raise less corn and more hell," Mary Elizabeth Lease harangued Kansas farmers during America's Populist era, but no such voice cries out today. America's 21st-century financial victims make no protest against the Federal Reserve's policy of showering dollars on the people who would seem to need them least. Long ago and far away, a brilliant man of letters floated an idea. To stop a financial panic cold, he proposed, a central bank should lend freely, though at a high rate of interest. Nonsense, countered a certain hard-headed commercial banker. Such a policy would only instigate more crises by egging on...

Chairman Ben Bernanke of the Federal Reserve told Congress on Wednseday that he believes Fannie Mae and Freddie Mac will make it through the storm in the U.S. housing market. On Bernanke's second day before Congress, this time in front of Rep. Barney Frank's House Financial Services Committee, the Fed chairman said the troubled Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) were adequately capitalized, and were in no danger of failing.

Economy: Based on his testimony Tuesday, Fed Chairman Ben Bernanke seems to be in an intellectual tug-of-war with those on Wall Street who think interest rates need to rise, not fall or stay the same. We hope he wins.The nation's top central banker had plenty to say about the economy, and much of it was pretty gloomy. Indeed, it was his remarks — coupled with President Bush applying more pressure on Congress to allow drilling for more oil — that led to the biggest one-day drop in crude prices in 17 years. Bernanke outlined all the Fed's done so far...

NEW YORK -- "The era of big government is over." So said President Bill Clinton more than 12 years ago in a statement that was never accurate. The government stayed big. And after the recent -- and justified -- interventions to prop up some big U.S. financial institutions, it's appropriate to say the era of government is now bigger than ever. It's going to stay that way for a long while, regardless of who becomes the next president. Neither of the presumptive major candidates -- Barack Obama and John McCain -- is a traditional, hands-off economic conservative. That's a...

The central bank has been justifiably on inflation watch lately. But fears about a Fannie and Freddie meltdown may force the Fed to hold back on rate hikes. Inflation risks haven't gone away, but the Federal Reserve might not be able to do much about it right now. Inflation hawks had been hoping the Fed would finally start to attack rising prices by raising interest rates. But the near-meltdown of Fannie Mae and Freddie Mac could tie the Fed's hands, forcing the central bank to keep rates low. Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500), the two government-sponsored...

The US government last night moved to provide state support to ailing mortgage agencies Fannie Mae and Freddie Mac amid heightened concern over their solvency. The Federal Reserve took the unprecedented step of bailing out Fannie and Freddie in a move designed to prevent their collapse and with it to secure the stability of the wider mortgage market. The board of the Fed, chaired by Ben Bernanke, voted to allow the New York Federal Reserve to lend to Fannie Mae and Freddie Mac should such lending as prove necessary. Meanwhile, the US Treasury said it would seek approval from Congress...

Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction. GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure. In recent days, I have consulted with the Federal Reserve,...

On Friday Treasury Secretary Paulson Said Keep Fannie and Freddie in Current Form. U.S. Treasury Secretary Henry Paulson signaled that a government takeover of Fannie Mae and Freddie Mac won't be necessary, saying they should continue as shareholder-owned companies with federal charters. "Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission," Paulson said in a statement in Washington. Paulson's remarks indicate he wants to reassure shareholders they won't be wiped out by any government efforts to ensure the stability of the firms that own or guarantee almost...

The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants. In a statement timed to precede the opening of markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a long-standing Treasury line of credit for the two companies. The Treasury also said it would seek temporary authority so that it could buy equity...

The U.S. Treasury Department and Federal Reserve on Sunday announced sweeping measures to lend money and buy stocks if necessary in embattled mortgage lenders Fannie Mae (FNM.N) and Freddie Mac (FRE.N). ADVERTISEMENT Acting before a key $3 billion sale on Monday of short-term debt by Freddie Mac, Treasury and the Fed unveiled a series of measures that made clear they want the shareholder-owned lenders to continue their pivotal role in U.S. financial and housing markets and to remain in private hands. "(Their) continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore,...

U.S. rescues Fannie, Freddie Treasury Department raises credit line, has power to buy companies' stock. Fed will open discount-lending to two government-sponsored mortgage lenders. Paulson calls for new regulatory controls.

The Psychology of Ben Bernanke: The Great Depression was caused by the Federal Reserve. Was he Talking About the current Great Depression that is Sprouting Under his Watch? Lessons From the Great Depression: Part XIII. The Federal Reserve. Federal Reserve Chairman Ben Bernanke this week once again mentioned that the Federal Reserve was “strongly committed” to financial stability and is considering options like keeping the lending facilities open to primary dealers. In short, they are going to continue to bailout banks and Wall Street firms while Americans get the shaft. This is an important statement and the futures markets are...

WASHINGTON (MarketWatch) -- Shares of Fannie Mae and Freddie Mac bounced higher Friday afternoon on a report that the companies had been assured by Federal Reserve Chairman Ben Bernanke that they could borrow from the Fed if necessary. That was a nice statement of support from Bernanke on a day when Fannie and Freddie needed all the friends they could get. The fact is, even your Aunt Mabel could get an emergency loan from the Fed. Typically, the Fed has acted as a lender of last resort only for commercial banks. But the Fed has authority to lend to almost...

IndyMac Bank, a prolific mortgage specialist that helped fuel the housing boom, was seized Friday by federal regulators in one of the largest bank failures in U.S. history. The Pasadena, Calif., thrift was one of the largest savings and loans in the country with about $32 billion in assets. It now joins an infamous list of collapsed banks, topped by Continental Illinois National Bank and Trust Co., which failed in 1984 with $40 billion of assets. IndyMac specialized in Alt-A loans, a type of mortgage that can often be offered to borrowers who don't fully document their incomes or assets....

Reuters) - Mortgage lenders Fannie Mae (NYSE:FNM - News) and Freddie Mac (NYSE:FRE - News) are "insolvent" and may need a U.S. government bailout, former St. Louis Federal Reserve President William Poole was quoted as saying in an interview with Bloomberg. "Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer," Poole was quoted as saying in an interview held on Wednesday. Chances are increasing that the government may need to bail out the two mortgage companies, Poole was quoted as saying. Shares...

They Still Don’t Get It By John Riley Chief Strategist 07/02/08 On June 29, in the prestigious Financial Times, Former Treasury Secretary and Harvard University President, Larry Summers wrote an article which shows that policy wonks don’t really understand the problems in our financial markets. His article, “What we can do in this dangerous moment” starts out great and I had hopes that maybe after years of toiling next to Greenspan, he rejected the Maestro's views and had seen the light. He hasn’t. (Dr. Summers quotes will be in blue italics.) “It is quite possible that we are now at...

U.S. financial markets need to be made more resilient and stable, Bernanke said, possibly by giving the central bank much broader authority. He also suggested the Fed may extend its emergency credit facility program for Wall Street banks. http://online.wsj.com/article/SB121551851320135555.html?mod=hps_us_whats_news

Federal Reserve Chairman Ben Bernanke said on Tuesday the U.S. central bank may keep an emergency lending facility for big Wall Street firms open past year-end while it seeks to restore financial market stability. In remarks to a mortgage lending forum sponsored by the Federal Deposit Insurance Corp., Bernanke said credit costs have been driven higher and the pace of U.S. economic growth also has been hurt by market turmoil. "We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and...

Early this year, the price of crude oil surpassed its previous inflation-adjusted peak of $103.76 a barrel (a record established in 1980). Since then, the price of crude has been making new record highs on a regular basis... Just what is pushing prices skyward? Surprisingly, the G-8 finance ministers failed to mention the US dollar’s role. Every commodity trader knows that all commodities trade off changes in the value of the greenback... For example, if the greenback had held its January 2001 value against the euro, oil would have traded at about $76 a barrel in May 2008. This is...

Not long after he took over at the Federal Reserve in 1987, Alan Greenspan was faced with questions about what to do with the Fed funds rate. After polling the various Fed presidents, in September of that year Greenspan found that there was "good growth, high optimism and full employment--all reasons to be leery of inflation." According to his biography the various FOMC members were persuaded "that the Fed would have to raise rates soon." In describing the thought processes at work, Greenspan plainly wrote that in order to "subdue inflationary pressures, we were trying to slow the economy by...

How did the U.S. financial crisis happen? A review of the road to ruin reveals a course littered with more villains than heroes. No, it’s not the Great Depression, but the United States is facing a nasty economy-wide retrenchment following the excesses of the 2000s, with no easy way to dance through it. Think 1979 to 1982, when then U.S. Federal Reserve Chairman Paul Volcker exorcised consumer price inflation from the economy. The difference today is that the inflationary explosion has been absorbed by prices of assets—houses, stocks and bonds, office buildings—rather than by the prices of things you buy...

The Federal Reserve Bank of New York said on Thursday that it has extended a $28.82 billion loan to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) for the acquisition of Bear Stearns. "Total credit extended by the New York Fed is lower than originally anticipated as a result of an extensive review of the portfolio," the New York Fed said in a statement on its Web site. In addition, JPMorgan has extended a $1.15 billion loan to a Delaware limited liability company (LLC), the statement said. The LLC, which will be consolidated on the books of the New York...

“Over the past five years the greenback has lost 40 percent of its value. Oil is close to $140 a barrel. And gold, now trading above $900 an ounce, is warning that if the Fed fails to stop creating excess dollars, inflation could rise to 6 or 7 percent.”—Larry Kudlow, “Where’s Bernanke’s Inner Volcker?”, June 27th, 2008. The Creature is at it again. No, the Fed didn’t cut interest rates again or bail out another investment bank—this time their crime was a bit more subtle, yet just as harmful. They lied. A few weeks ago, ALG News was very pleased...

Saudis press United States to put an end to rate cuts American Account Irwin Stelzer SO the Federal Reserve Board’s monetary policy committee (technically, the Federal Open Market Committee, or FOMC) has decided to leave interest rates as they are - which is far less important than how it arrived at that decision. What follows is a combination of hard fact and my own surmise, mixed together so as to shield the usual highly placed, reliable source. There is something called “the Fed family”. It’s not as shady as a mafia family, but far more powerful. Members include chairman Ben...

BUREAU TO STUDY IMPACT ON THE ENVIRONMENT DENVER - Faced with a surge in the number of proposed solar power plants, the federal government has placed a moratorium on new solar projects on public land until it studies the environmental impact, which is expected to take about two years. Much of the 119 million surface acres of federally administered land in the West is ideal for solar energy, particularly in Southern California, Arizona and Nevada. Solar companies have filed more than 130 proposals with the Bureau of Land Management since 2005. They center on the companies' desires to lease public...

The Shrinking Influence of the US Federal Reserve By Gabor Steingart in Washington Humiliation for Mr. Dollar: Ben Bernanke, the chairman of the United States Federal Reserve Bank, faces a general investigation by the International Monetary Fund. Just one more example of the Fed losing its power. The United States Federal Reserve Bank, or Fed, seems as much a part of America as Coca-Cola or Pizza Hut. But at least one difference has become apparent in recent days. While the pizza chain and soft-drink maker are likely to expand their scope of influence in the age of globalization, the US...

The Fed, for the first meeting since the credit crisis began last summer, didn't lower interest rates, signaling rising worries about inflation risks. Its concerns were tempered by language indicating continued worries that the aftershocks of the credit crisis that triggered its rate cuts could weaken the economy further. The central bank left the federal funds rate, charged on overnight loans between banks, at 2%. In a statement accompanying the decision, the Fed's language suggested it will continue trying to balance the economy's risks from stubbornly high inflation with the threat of continued weak growth in the second half of...

Federal Reserve Chairman Ben Bernanke may soon face a delicate challenge in steering monetary policy as the Fed's interest-rate-setting committee shrinks. An impasse between Senate Democrats and the Bush administration is about to leave three vacancies on the Federal Open Market Committee for the first time since its existing structure was established in 1935. That could tilt influence on the panel toward presidents of the Fed's regional banks. Those five presidents, unlike the seven Washington-based governors on the 12-person FOMC, aren't appointed by the president or confirmed by the Senate. In recent months, several presidents have been garnering heightened attention...

Forget the housing collapse, the “credit crunch” and—in isolation—higher oil prices. The real economic menace may be resurgent inflation, which is the broad rise of most prices. To understand why, some history helps. The government’s worst domestic blunder since World War II was the unleashing of high inflation: In 1960, annual inflation was 1.4 percent; by 1979, it was 13.3 percent. This terrified Americans, who feared falling living standards. It also destabilized the economy, causing harsher recessions that culminated with 10.8 percent unemployment in 1982. We don’t want to go there again, and Federal Reserve Chairman Ben Bernanke has been...

Finance: In the busy week that was, it's a story that was virtually ignored: The Treasury wants to give the Federal Reserve sweeping new powers to oversee and regulate Wall Street. We're not sure that's such a great idea.Treasury Secretary Henry Paulson said it's time to give the Fed more authority over the investment banking houses. "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," he said Thursday. After all, the Fed has turned into the lender of last resort for Wall Street, after extending hundreds of billions in...

Treasury Secretary Henry M. Paulson Jr. plans to call today for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms to protect the financial system, adapting his vision of how the financial world should be regulated to reflect the lessons of the collapse of Bear Stearns. "Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," Paulson plans to say in a speech today, according to prepared remarks obtained by The Washington Post. But the central bank "has neither the clear...

The Federal Reserve is almost certain to leave interest rates unchanged when it meets next week, and it currently doesn't appear to see a compelling case for raising rates before the fall, unless the inflation outlook deteriorates considerably. An August rate hike can't be ruled out. Between now and then, a raft of economic data, including two employment reports and several gauges of inflation, will be released. If the overall economy and the financial system show signs of rapid improvement or the inflation news worsens significantly, the Fed may decide to start reversing some of the rate cuts that began...

The New York Federal Reserve's closed-door rule making with top players in the massive $60 trillion credit default swaps market came under legal fire on Sunday, as a fair finance activist filed a complaint questioning why it was done in the dark. "The Federal Reserve seems to think it can engage in rule making in secret only with the industry," said Matthew Lee, executive director of the New York-based non-profit group Inner City Press/Community on the Move. Lee filed the administrative complaint on Sunday with both the New York Fed and the Federal Reserve Board in Washington. In the complaint,...

Greenspan sees Fed getting tough on inflation By Chris Aspin and Jason Lange Fri Jun 13, 5:06 PM ET Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday the Fed will have to tighten monetary policy to put a brake on inflation, adding that the worst of the credit crisis may have passed. Growing price pressures have led the U.S. central bank to recently shift to more aggressive anti-inflation rhetoric, and expectations are rising that policymakers will raise benchmark U.S. interest rates within months. "If you're going to keep inflation rates down ... the Federal Reserve is going to...

When Paul Volcker declared several weeks ago that the world was in a "dollar crisis," his successors at the Federal Reserve made their private disapproval very clear. This week current Fed Chairman Ben Bernanke waved the white flag over Mr. Volcker's point by declaring his own public concern "that the dollar remains a strong and stable currency." Apologies accepted, provisionally. The tragedy is that this is big news. The Fed has monopoly power over dollar creation, and concern for its value ought to go without saying. Yet so great has been the Fed's dollar abdication in recent years, and especially...

The dollar surged while oil and gold tumbled on Tuesday after Ben Bernanke surprised markets by making clear the Federal Reserve does not want the US currency to weaken any further because of the risks to inflation. The Fed chairman’s comments mark a radical break with the US central bank’s practice of not commenting on the dollar, a privilege traditionally reserved for the US Treasury secretary. His decision to speak out signals the importance the Fed puts on price pressures from abroad at a time when oil has hit record highs but domestically generated inflation pressures remain muted. The Fed...

...For those of you who are unfamiliar with Volcker, he served as Fed Chairman from 1979 to 1987. Volcker came in when the US was experiencing the worst inflation since the Civil war and left when the Fed experienced the worst protests and political backlash since the Great Depression. Simply put, Volcker kicked off a serious recession in order to slay inflation. From an objective standpoint, his decision made economic sense, but it was a political death knell. Volcker’s clearly aware of the fact, joking that the “greatest strategic error” in his life was not the recession, but taking his...

Fed, Treasury see economy reviving later this year; but how will we be able to tell? WASHINGTON (AP) -- With any luck, the second half of this year will be better than the so-far rocky first half. The Federal Reserve chief hopes that is the case. So does President Bush. For the rest of us mere mortals, it feels like the pain is getting worse. When the economy begins to snap out of its funk, how will we know? Like calling a recession, pinpointing the turnaround can be as much art as science. Economists agree there could be some strong...