The sooner that businesses cut excess stocks and revise production, the sooner the cycle can work itself through. Fannie Mae and Freddie Mac, the two enormous lending companies that were born from government agencies, were the focus of a new bill introduced in the House this week by Representative Richard Baker. The bill would place authority with the Fed for setting minimum-capital requirements and for approving new activities for Fannie Mae and Freddie Mac. There is also the considerable risk of moral hazard, because the providers of capital for both companies swallow the higher risk under the belief that a taxpayer bailout would save them. The Wall Street Journal reports that while Fannie Mae and Freddie Mac securities are not officially backed by the U.S. government, the market gives the mortgage companies better rates because of an implicit guarantee that the government wouldn't let the two agencies fail.
Critics worry that their growing debt poses a risk to the economy.
Meanwhile, President Bush s tax cut plans hit some snags in the US Senate. The equities markets had a mixed week, starting down but experiencing a tremendous rally on Thursday after hearing positive results from Dell. By Friday however the stock markets retreated once again, making the week a down one in net. Oil climbed, and the debate intensified over whether the Fed would cut rates again the next time it meets. Palladium continued it s downward march uninterrupted, with traders reporting plentiful supply.