Alan Greenspan was interviewed by Bloomberg's Al Hunt and opined on the Bear Stearns bailout, Lehman Brothers recent trouble, and his view of the Fed's role as market stabilizer. I feel this is the most self-serving and disingenuous words I have heard yet from a master spin doctor and former Federal Reserve Chairman.

Bear Stearns "Bailout" More Like a Mugging

The interview begins with Greenspan being questioned about the Fed's role in the Bear Stearns bailout. He answered saying the Fed had "very little choice" due to Bear Stearns being "so interconnected to the system there was a high risk if something were not done".

The Housing Bill containing the Paulson GSE bailout plan goes to the House floor for a vote today. The bill, as written by the Senate, has a $4 Billion in grant provision for local governments to buy foreclosed homes directly. The President threatened a veto if this provision is in the final bill.

Treasury Secretary Paulson is on a crusade to get the bill passed quickly to assure investors both domestic and foreign that the credit of the United States is still 'AAA'. It hasn’t worked as well as he’d like since at least one sovereign fund, the KIA, stated recently they won’t be buying anymore GSE debt.

I noticed the Texas Ratio that everyone is using to speculate on the health of the nation's banks has a problem. The calculation belies a different conclusion in many cases and does not necessarily mean a bank is weak.

Texas Ratio Defined

Gerald Cassiday of the RBC Capital Markets, coined the name for his calculation which grew out of the Texas S & L meltdown of the 1980's. The Texas ratio calculation Cassiday developed is calculated by dividing a bank's non-performing loans, including those 90 days delinquent, by the company's tangible equity capital plus money set aside for future loan losses. ABC News did a story that is getting a lot of traction especially when they published a list of potential weak banks using the Texas ratio (see list below).

Finally I am getting some support for my longstanding prediction that the GSEs, Fannie Mae and Freddie Mac, are on the verge of collapse. Tuesday The New York Times published an article which I believe is the first from a major news outlet to even raise the question of the GSEs'' long-term viability.

The article stated the worries by saying,

Larry Kudlow earlier this month stated during an interview with David Walker that the Community Reinvestment Act "created subprime loans". Larry Kudlow in this interview is really pushing the agenda attempting to help minority groups get their piece of the American Dream "caused" the subprime meltdown.

In this post-Bear Stearns (BSC) bail out interview, David Walker made the connection those who originated and funded the subprime loans where not the ones taking the risk in the future. Those getting the fees are not now taking the risk - the Fed is.

The housing crash, currently in its infancy, will soon grow up into an economy killing monster that the Federal Reserve has no weapon strong enough to defeat. A housing crash is unlike a stock market crash in that there is no easy way out.

Let’s take a walk back in time to the tech stock crash just 8 years ago and compare it to a housing crash.

When President Bush signed the Economic Stimulus Act into law making jumbo mortgages GSE insurable, he may have unwittingly pushed our GSEs, Fannie Mae (FNM) and Freddie Mac (FRE), already on tilt, over the edge. If you think we have a housing crisis now, wait until you see what the demise of the GSEs and subsequent secondary mortgage market would do.

Let’s start with a few facts here to bring you up to speed on all the players and the game.