Taxpayer Exposure

Treasury Secretary Henry Paulson is scheduled to give a speech today, outlining the administration's efforts to ameliorate the effects of the ongoing financial crisis. In mentioning the investor reluctance to fund mortgages, Sec. Paulson also seems to depend on "market discipline" to restore confidence in the markets. He also plans to use the occasion to defend a freeze in subprime borrowing costs. Although the author of this article, Jeanne Sahadi, seems to believe that there are two exclusive camps surrounding the crisis, one camp that feels that the Treasury's plan is too little, and another that feels that free market principles should prevail and those who took on risk should learn the meaning of risk, I find merit to both arguments.

Regardless, some are wishing that they had agreed with Ron Paul in 2005 when he wanted to remove the implicit taxpayer backing for the GSEs, such as Fannie Mae and Freddie Mac, to avoid a government bailout after the housing bubble burst. After a closer look at the liquidity figures of the Federal Reserve and the European Central Bank and the regulatory options available to forestall the crisis, "Mish" Shedlock says that there is no possible rescue plan, and clears up the mistaken notion that liquidity is capital, which can be used to underwrite shaky markets, which it is not.

"Raghu" offers up some advice through his new book, on how the subprime crisis can be further averted, although I have to wonder how he thinks the government will find the money to bail out the market, for even 1%, nonetheless 20%.

IndyMac Bancorp Inc. is looking at darker days as Fannie Mae and Freddie Mac have raised fees and surcharges to securitize risky loans.