I just cannot see that happening. At that point it will be all but impossible for the Fed to make a credible case that ‘growth’ will be appreciably stimulated by cutting rates again when they are already so low, and that inflation is still the lesser concern. Bernanke would make himself look even more like a Wall St toady than he already has.

OK that will buy them one or two quarters before they need to seek more cash. The Next time they go begging, the rate will be much higher, (probably 12% to 16%). After that, I think the money train runs out, and the GSE face crunch time.

Although its likely the Dem’s will be in control of the White House and have at least a small majority in the house come Feb 2009. I think will see them pass huge bailout bills for the GSE. When that happens we can kiss the value of the USD goodbye.

So far Bush has promised to Veto any bailouts. The real question is Will the GSE’s be able to hang on until after Bush is gone, or will they make it to the bailout money train? My guess is that the bailout bill remains prepped for vote but is held back until Bush leaves office.

FYI: 98% of all mortgage financing is now handled by the GSEs. The First and Only Mortgage Lender:

“Federally linked entities like Fannie Mae now back 98 percent of home loans sold by banks.”

http://www.csmonitor.com/2008/0508/p02s01-usec.html

FWIW: I expect a jump in the weekly jobless reports by the Mid to late June, but I think the market will rise on expectation the Fed will cut rates again. Of Course rate cuts no longer have the same affect as the did in the past, as borrowers are being charged a huge premium because of the credit crunch. Investors have their blinders on, and they can only see one move head. Be careful going short!

http://biz.yahoo.com/bw/080512/20080512005681.html?.v=1

Complacency: $2.5 bln of CDs are below $100k, but $1.9 bln are above $100k. People are up for losses when this bank fails, do they never learn?

Non-performing assets up from $430 to $680 mln in 3 months, or 2.99%->4.75%. Looks exponential to me.

http://www.financialsense.com/Market/wrapup.htm