EconInvestor

Maiden Lane and the Fed’s Credibility reviews the Fed’s purchase of assets in the JP Morgan/Bear Stearns deal. 

Feeling optimistic about the economy? Here are some articles to change your mood!

The key point in  Paul Krugman’s Depression Economics is “government spending is a huge tax on true economic productivity.”

Why The Greater Depression Still Lies Ahead discusses the impact of debt on the Great Depression and the similarities our current economic situation.

Stocks’ bear market risk accelerates is not optimistic about the second half of the year.

The New Wildcard of Political Uncertainty has this interesting observation:  “Incidentally, to bring today’s jobless rate down from 9.9 percent to 5 percent over the next five years, the U.S. economy would need to produce 250,000 net new jobs per month every month for five years straight. How tough would that be? The average net new job creation since 1990 has been 90,000 a month.”

A Dash of Insight: June Employment Report Preview has some interesting comments on predicting unemployment numbers.

ADP Jobs Report Supports Double-Dip Case is another article supporting a double-dip recession.

Don’t forget Europe. What is going on over there can affect us:  The Consequences of European Austerity

Here is another story on the effects of austerity: Ireland in Decline, Or, What Austerity Looks Like.

Bullfighter Christian Hernandez runs out of ring in Mexico, arrested for breach of contract. In hindsight, some decisions look bad…such as being a bullfighter or giving Fannie Mae and Freddie Mac a government charter.

It’s Time to Nationalize Fannie and Freddie cries out Stephen A. Blumenthal in the Wall Street Journal (June 15, 2010) (subscription may be required). His argument is based on the following:

“During the recent financial crisis, the private label mortgage-backed securities market disappeared—and with it went the liquidity it provided to the mortgage market outside of Fannie and Freddie. Banks were left to take loans they made into their inventory, and assume both credit and interest-rate risk. They refused, and simply stopped lending unless the mortgages could be sold to Fannie and Freddie. To a large extent that situation still exists today, as Federal Reserve Chairman Ben Bernanke said earlier this month.”

People who want to nationalize usually are looking backwards rather than forwards. They lack vision. In this case, let bankruptcy take place.  If there is a demand for 30-year mortgages, new instruments will arise to fulfill that demand if banks don’t want to issue mortgages in their current form.

In any case, who says that all financial institutions won’t issue new mortgages if the government refuses to back them? Here’s a thrift that knows what it is doing:  A Thrift Where Being Conservative Pays Dividends.

While the US still has some free enterprise left, Fannie Mae and Freddie Mac show the problems when politicians steer companies for political purposes. Since 2002, the Wall Street Journal has pointed out the accounting and deficiency problems with both institutions. However, these were ignored due to Barney Frank (D-Rep MA) wanting to pursue his own “affordable housing” agenda through Fannie Mae and Freddie Mac.

With the collapse of both institutions, the taxpayer is still on the hook for billions. This Wall Street Journal article from May 24, 2010, spells out the problems remaining: Fannie, Freddie Fix Is Federal Hot-Potato (subscription may be required). The article points out that “Together with the Federal Housing Administration, Fannie and Freddie guaranteed 96.5% of all new home loans last quarter. “ According to the article, so far the government has injected $145 billion into the institutions. Furthermore, it is not over.

Now we move to Politicizing the Federal Reserve. Maxine Waters (D-Rep CA) wants to push her “affordable housing” agenda onto the individual 12 Federal Reserve Banks. This is after the Fannie Mae and Freddie Mac debacle.  Instead of fixing the mortgage mess, her proposal will lead the Fed down the same road as Fannie Mae and Freddie Mac.

Taking a trillion dollars and burning it won’t get the country out of a recession.  Of course the “stimulus” is more than a trillion, but you get the idea. What matters is not how much money is spent to stimulate the economy, it is how it is spent – or better yet, how it is not spent.

Here are 10 Scary Charts – and I’m not talking Halloween!

We also have Bernanke Testimony Indicates Fed Still in Denial. Unfortunately, while Bernanke professes to understand the Great Depression, he is making some of the same mistakes. This will be the topic for a much longer blog.

In meantime, the full employment act for lawyers continues with More Than 6,000 Lawsuits Filed Against BP.  Who do you think is going to collect the most money from the BP spill: the average lawyer or the average complainant? Just wondering…