Yesterday, Bernanke testified on capital hill.  His testimony, which is available on the Federal Reserve's website, offers a good overview of how the Fed views the economy.

I don't know where it started, but it has become quite clear that the Bush administration has done nothing to protect the US consumer and worker.  Nothing, zilch, nada.  If this is "compassionate conservatism", well, it's not so let's lose that label.

As if on cue more news is coming out that shows how the government has let business say and do things that aren't good for the US public's health or overall working conditions.

Over the last 4-5 years we have seen an astonishing amount of problems in the business community.  And it's not just a minor incident here and there; it's everywhere. From the complete breakdown in the financial sector to toy recalls to meat recalls every industry that has "self-regulated" has shown that it can't.  

Over the weekend, Barry Ritholtz over at the Big Picture blog had one of the most thought provoking posts I have read.  It's titled "Investing in a Post-Fact Society (a/k/a, Were the Good Times a Mirage?)".  It is a post I will be chewing over for quite some time.  I asked him if I could use it to riff off of and he said yes (Being a good lawyer, I still have the email!).  Below is part of the post and then some of my own thoughts.

Last week has a historic week for the Federal Reserve.  Going back to the end of the previous week we learned that one of Wall Street's oldest and most venerable investment banks was basically bankrupt.  Over the weekend we learned that JP Morgan was working to buy Bear.  And then we learned that JP Morgan purchased Bear for $2/share with a $30 billion guarantee from the Federal Reserve in the event some of Bear's loans were bad (which some pretty much have to be in the current environment).  Now that all of this is over, let's look at the pros and cons of what the Federal Reserve did.

Over at the Washington Note, Steve Clemons linked to a 2003 article titled The Debtors Empire.  What I find incredible about this article written almost four and a half years ago is how prescient its observations are today.

This post is also on my blog.  I will update it throughout the day as events develop.  Any further updates from the trading day will be on my blog.

There were some fast moving developments in the Bear Stearns situation.

Pushed to the brink of collapse by the mortgage crisis, Bear Stearns Cos. agreed -- after prodding by the federal government -- to be sold to J.P. Morgan Chase & Co. for the fire-sale price of $2 a share in stock, or about $236 million.

From Bloomberg:

Bear Stearns Cos. shares plummeted a record 53 percent after the New York Federal Reserve and JPMorgan Chase & Co. stepped in to rescue the fifth-largest U.S. securities firm with emergency funding.

After denying earlier this week that access to capital was at risk, Bear Stearns said today that its cash position had ``significantly deteriorated'' in the past 24 hours. The New York Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement today.

From the London Times online:

Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive.

The name on most people's lips was Bear Stearns. Although the Fed billed the co-ordinated rescue as a way of improving liquidity across financial markets, economists and analysts said that the decision appeared to be driven by an urgent need to stave off the collapse of an American bank.

"The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry," Simon Maughan, an analyst with MF Global in London, said.

From Marketwatch:

There is a marked difference between economic growth and debt-induced demand. Instead of letting the market take its medicine and enter recession in 2001, the powers that be injected fiscal and monetary drugs to dull the pain and induce stock gains.

From the NY Times:

Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a new record.

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

Housing has been deteriorating for the last two years.  News from yesterday indicates the market stands a very good chance of getting worse.

From Josh Marshall:

A lot's getting said tonight. And a lot of it is baseless speculation. But the one thing that rings true to me is this: The Clinton campaign got rough and nasty over the last week-plus. And they got results. That may disgust you or it may inspire you with confidence in Hillary's abilities as a fighter. But wherever you come down on that question is secondary to the fact that that's how campaign's work. Opponents get nasty. And what we've seen over the last week is nothing compared to what Barack Obama would face this fall if he hangs on and wins the nomination.

Below is a compilation of two posts from my blog last week.  Combined they show an economy that is in serious trouble.

Mish has been all over this story.

This is a compilation of posts from my blog.

From today's WSJ:

Goldman Sachs economists estimate that as much as $3 trillion in mortgages could be underwater by the end of the year, leaving 30% of the country's outstanding mortgages in negative equity. Since there is roughly $1 trillion in subprime mortgages outstanding, that means a large amount of better-quality mortgages, such as prime and Alt-A -- a category between prime and subprime -- will be attached to negative equity.

There will always be a debate about the need and extent of regulation.  This debate is healthy; it should prevent one side from pushing too far against the other.

However, as the financial system continues to experience a high amount of turmoil, it is clear that deregulation has exceeded the "too much of a burden on business" argument.  Instead, too little regulation has broken the economy.

Since June of last year the curtain has raised on the US economy.  Underneath the hood of "The Greatest Story Never Told" lies a host of problems that will take a while to fix.  In other words, don't expect this situation to end anytime soon.