Robert Novak

-- Last Thursday, Countrywide Financial, Calabasas, Calif., the nation's largest mortgage banker that funds one out of every five U.S. loans, was reported by Merrill Lynch to be facing bankruptcy. On Friday, it disclosed using its entire $11.5 billion line of credit.

-- On Monday, jumbo specialist Thornburg Mortgage Inc., Santa Fe, N.M., announced it would take no new loan applications. Facing a severe cash shortage, Thornburg sold $20.5 billion in securities at discount.

-- On Monday, Capital One Financial Corp., Overland Park, Kan., announced an immediate end to residential mortgage operations at its wholesale mortgage unit, GreenPoint Mortgage. "Current conditions in the secondary mortgage markets create significant near-term profitability challenges," Capital One announced.

A prominent Republican banker in the Midwest (whose firm has not been hurt by the credit crunch) is disturbed by the rhetoric coming out of New York and Washington. "This is not a matter of hedge funds with subprime paper," he told me. "These are solid firms going under."

This banker wants help from Washington, not only the Fed's interest rate cuts but also additional assistance from Freddie Mac (supporting the secondary mortgage market) and Fannie Mae (lending to the primary mortgage market). Although the FOMC's statement last Friday constituted a directive away from neutrality toward easing to prepare for interest rate cuts, Fed-watchers doubt that the FOMC will do more than cut the federal funds rate by 50 basis points (one-half of one percent). The administration and conservative economists oppose raising the caps on Freddie and Fannie.

Sen. Dodd's stunt of summoning Ben Bernanke and Treasury Secretary Henry Paulson to his office Tuesday promises more of the same when Congress reconvenes in September. While Dodd commended Bernanke's attitude toward the credit crunch because he "gets it," he criticized Paulson's caution. Indeed, in failing to perceive this threat to the economy, not for the first time has the Bush administration been behind the curve.

Robert Novak

Robert Novak (1931-2009) was a syndicated columnist and editor of the Evans-Novak Political Report.

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