AWOL - Where is the political angst when you need it?

Listening to the first part of the House Financial Services Committee hearing on predatory lending and financial sector packaging is tedious. The consensus is, "Let's get the money flowing like it was before, but protect the borrowers from getting fleeced."

The money will not flow in a healthy mortgage sector in the same amounts, because those amounts were based on too low interest rates and packaging of mortgages to sell in shady CDOs upstream. Lots of cheap money leads directly to this kind of bubble and bust, it is the leverage that makes that kind of volatility possible.

Inflating home prices made people feel good, and lets them think that they are financial geniuses and promotes spending and so on, but in the end saddles people with debt they don't want and undermines the security of their financial assets and breaks their nest eggs.

The current hearings notwithstanding, and recognizing Chairman Franks went so far as to clear his calendar, nobody I am aware of is pressing the culpable in the recent financial sector screw-up or reforming the troops around legitimate policies.

• Bombs are dropping on middle class America with housing prices crumbling. It is not only those losing their homes, but those who are losing equity who are hurt.


• The bombers are the ludicrous mortgage peddling schemes, but they were sent into the skies by the too low for too long interest rates set by the Fed.


• Traditional defense have been sabotaged by the same bogus financial actors who force-fed the mortgage peddlers. Bad loans were packaged and gilded with spray paint and sold upstream as gold bricks.


• Yes, home buyers should have known it was too good to be true. Buyers of packaged debts should have wondered why they were so light. But even if all the naive or purposefully apathetic are punished, many millions of others are innocent victims.


• Homeowners who were led out into the open by the Fed's low interest rates are being blamed for coming under fire. It's like blaming those in the twin towers for being at work in what they knew was a terrorist target.

The problem is that the generals are chicken hawks. The Fed knows nothing other than the big red interest rate button. The "Easy" button. The Supply Side strategy of the Bush administration never worked and never can work. The SEC has political hacks rather than marshals of the market.

Were the shoe on the other foot, and a Democrat in the White House, the traveling Republican bellows would be touring the talk shows fanning the flames of crisis into full-blown panic. Look what they did with 9-11.

On the other hand, the Democrats are revealing too much about themselves when they are not on top of this. This is not a passing problem. The housing sector has saved the economy during the past six years. Debt for households, debt for government, cheap money, falling dollar.

Interest rates can be low and stable if the credit worthy are the only people able to borrow and if margin requirements on every kind of financial exchange are raised. High.

Have the Democrats bought into market rhetoric? Do they believe the architects of this falling house of cards who seem to say the Market is still prescient, but that it needs to be calmed like an hysterical matron (Jim Cramer?).

To revisit stocks: Be sure, stocks are not up because of strength in their fundamentals or faith in the economy, but because the villas of SIVs and hedge funds got washed away and all that liquidity at the top has only stocks, commodities and currency hedges to run to.

There is no strength.

The dollar has been heading south for years, fleeing Supply Side II and Greenspan Cheap. Now, with Bernanke cutting rates, it's on the run. With it goes the Chinese yuan, being pegged by its government. Look for the rest of the world to try to quarantine the US and China.

Let's put it simply:

• The Fed under Greenspan held short-term rates under water so long, they expired as a tool of economic policy. (See inverted yield curve. The back end of the yield curve is not responding.)


• The Bush tax cuts and Fed bailouts and so-called financial innovation have liquidity sloshing around at the top. This is the excess in the financial system that is the source of instability.


• Bush economic chicken hawks have spared the financial sector from even the most minimal standards. The bad apples have gotten into the barrel. Even Wall Street's less intoxicated voices can be heard calling for hedge fund disclosure and conflict of interest protections. The Bush team is in the bunker and out of earshot.
  

Dear Democrats: It's the economy, stupid.