While I share your sense of Paulson’s shortcomings and fan-dance methods, I do think he acted decisively on the GSEs, even lining up Congressional support beforehand (although I doubt Treasury will get a completely free hand in mailing a check to Fannie and Freddie).

The political choice that Americans don’t want to face is between dramatically shrinking the GSE mortgage market, with an attendant deflation in house prices, and directly subsidizing it, eventually at the expense of other discretionary goverment programs (when the national debt and erosion of the USD become intolerable to our foreign financiers).

Example: Fed Report Update
posted on July 11, 2008 11:59:22 am
The Fed did an inconsequential net add of $1.75 billion today. That leaves the net drain on the week at $6.2 billion. The Fed continues to take no action to ease the extraordinary strain on the equities market. The Fannie-Freddie spread edged out to 91-95. Fed Funds rates were little changed and repo rates were….

I don’t how tracking repos is possible with them being so obscure to examination or you can only see what they want you to see.

Good Luck

Personally, I believe GSE backing from the Bank of Abraham, Isaac, Jacob, Jesus and Mohamed would not change the fact the U.S. economy is structurally incapable of honoring its mountain of liabilities.

NEWSWIRE

Treasury Secretary Henry Paulson just announced that the Federal Reserve has opened its “Discount Window” to Bob, an insurance salesman from Tampa, FL. [Editor's Note: We are still in the process of confirming Bob's last name. Will post upon confirmation.]

Bob, who was interviewed on the steps outside of the Federal Reserve Building in Atlanta, GA, holding two fistfuls of cash, said, “Man, that Hank dude ROCKS! With summer vacation coming to a close in just about a month, we thought we were only going to be able to vacation in nearby Orlando. But with this,” Bob shows off his newfound bills, like a Pac Man Jones at strip joint, “we’re going to Cancun!!”

When queried as to how he was able to access funds previously reserved for banks, Bob said, “Dude, it was so easy. I called the broker who had already hooked me up with the 3rd mortgage on my condo. He said he wasn’t doin’ loans right now, but that I should give Hank a call. So I did.

“Wait a second. I think I still got one of his flyers…OH, yeah, here it is:

‘Need Ca$h Now?
Call EAZY FED.
Lot$ of ca$h
Great Rate$ 2!!
1-800-EAZY-FED’”

[At bottom of flyer is a buxom woman, holding a wad of cash. She's smiling into the camera, and there's a comic strip caption from her mouth which reads: "Oh Henry!!"]

1-800-EAZY-FED. If you need cash, you should give him a call. He’s always working–even on Sundays.

Oh, my. That is so old-school, grandpa.

Cast your mind back to August 2007, when kind Uncle Ben opened the discount window and slashed the discount rate, in what was praised as an innovative response to the first inkling of financial distress.

JP Morgan, B of A, Citi and Wachovia all stepped up to the plate for $500 billion each of discount window funding that they didn’t even need.

Like gay marriage, discount window borrowing no longer carries any stigma. It’s ALL LEGAL, and the newly-minted borrowers can expect smiles and bouquets. Welcome to the window, Freddie and Fannie! How ’bout a round of applause for the cute couple?

how much business is being taken away from the capital markets and put into the hands of the fed?

can iBanks function without the gravy train underwriting business from the GSEs? and what about the repo market? how much is the fed cutting into that for banks when ibanks can cut out the middleman?

the bandaid can only cover for so long until you need to expose the wound open in order for it to heal

Absolutely no chance of that. Many Congresspersons seem like hopeless idiots. I wonder if they see anything wrong with people like Bill Gross saying he’s buying distressed GSE debt because he’s sure the government won’t let them fail/default. And don’t forget this is an election year.

If the two companies fail, the mortgage markets could fall into tremendous disarray causing more write-offs at banks and making home loans much harder to get.

Maybe the latter is exactly what’s needed?