Senator Dodd Alludes to Fed Target Cut

Senator Christopher Dodd, Chairman of the Senate Banking Committee, concluded his meeting with Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson and held a press conference this morning. Dodd said that he asked the Fed chief to "use all the tools at their disposal, here, to keep our markets working." He continued that Bernanke responded that "he intends to utilize all the tools at his disposal to act." This seems to clearly imply the Fed will cut target interest rates in the near term, or at the latest, in September.

Dodd tried to avoid giving the impression of applying pressure on the independent Federal Reserve, but we suspect that the meeting alone effectively did just that. Dodd indicated that Treasury Secretary Henry Paulson was reluctant to raise portfolio limits for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

The committee chief also noted that the rating agencies, including Moody's (NYSE: MCO) and Standard & Poor's, a subsidiary of McGraw-Hill (NYSE: MHP), need a review. He said specifically that “we need to look at credit rating agencies, in my view, as well, and what can be done to make them more transparent, so that they will not be so far off the mark in assessing the credit worthiness of financial instruments, as they have been.”

Dodd said the federal government had secured $100 million in appropriations to help troubled borrowers avoid foreclosure. Mortgage holders in trouble are encouraged to let the regulators know who they are, as they may qualify for such assistance in the future. Also, it is the intent of the government to avoid the loss of homes based on the act of entering into a bad mortgage. Wall Street Greek agrees it was the failed effort by regulatory agencies that allowed such excesses to occur in the first place, and they should now help these borrowers out of the mess. Borrowers in trouble should call: 1-888-995-HOPE.

Finally, we want to apologize to Senator Dodd for our critical commentary in this morning's Today's Key Market News - Three Stooges Reunion. We would replace him in the group now with Shemp, or William Poole.

Please take this opportunity to debate the issue of federal bailout for troubled borrowers and also to freely discuss your view on whether the Fed should cut the target rate or not. You may comment at the bottom of each article.

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