Ben Franklin Report: Quick Shots Across the Bow

Today will see Round 2 of top economic officials versus Congress! To the finish! For the first time yesterday Fed Chairman Ben Bernanke mentioned the dreaded "R" word, and it isn't radical or racism.

In the Wall Street Journal today, Andy Lapierre gives a thorough look at the ongoing credit crisis and the Fed's responsibility in causing asset bubbles, malinvestment, and labor dislocation through the "Greenspan put."

The President of the New York Federal Reserve, Timothy Geithner is still worried about the state of capital markets, and has a plan to fix the regulatory overhang created by the Federal Reserve's new lending options. In an election year, the Fed has a steep hill to climb in justifying putting so many billions of tax payer dollars at risk. His testimony, though really boring to read, has a couple of gems firmly lodged into it. Like this:

The sudden discovery by Bear’s derivatives counterparties that important financial positions they had put in place to protect themselves from financial risk were no longer operative would have triggered substantial further dislocation in markets. This would have precipitated a rush by Bear’s counterparties to liquidate the collateral they held against those positions and to attempt to replicate those positions in already very fragile markets.

In short, we judged that a sudden, disorderly failure of Bear would have brought with it unpredictable but severe consequences for the functioning of the broader financial system and the broader economy, with lower equity prices, further downward pressure on home values, and less access to credit for companies and households.

In a sign that the credit crisis is spreading beyond the mortgage market where it first reared its ugly head, Americans are falling behind on every single type of loan.

And, for good measure, here are some anecdotal accounts of the muni bond problems. Public projects are being forced to sell bonds due to tighter and tighter budgets, but being handled on the other end by higher financing costs. Of course, in some cases, these are projects that will save money for the taxpayer.