The dollar fell, then firmed, against most of the world's other major currencies Tuesday at mid-day, on word of yet another U.S. government intervention to ease the financial crisis. (For full currency data, click here.)

Still, the more important theme, many economists and analysts agree, is how well the dollar has fared given the remarkable increase in debt by the United States and the supply of dollars globally.

The dollar weakened about one cent to $1.3040 versus the euro and about half a cent to $1.5160 versus the British pound on Tuesday at mid-day, after the U.S. Federal Reserve announced it would buy up to $600 billion in mortgage and mortgage servicer-related debt and up to $200 billion in consumer and small business-backed loans, to free up credit in these sectors. The dollar also fell about one cent to 95.53 versus Japan's yen, and about half a cent to $1.1881 versus the Swiss franc.

Under the new programs announced Tuesday, the U.S. Treasury will provide about $20 billion in credit protection to the U.S. Federal Reserve, using money from the $700 billion Troubled Asset Recovery Program (TARP).

In September, the Fed's balance sheet totaled $924 billion, when the first wave of the financial crisis began to freeze credit markets and decimate stock markets around the world. However, if all loan guarantees are accessed, and if all of the remaining $780 billion debt is added to the Fed's balance sheet, that balance sheet would increase to about $3 trillion.

The frontal assault to check the financial crisis and stem rising fear in credit markets has begun.

The U.S. Federal Reserve Monday doubled its Term Auction Facilities - - its short-term loans provided to banks - - to as much as $900 billion.

"The Federal Reserve stands ready to take additional measures as necessary to foster liquid money-market conditions,'' the central bank said. The Fed also will begin paying interest on bank reserves.

The Fed added that it and the U.S. Treasury are "consulting with market participants on ways to provide additional support for term unsecured funding markets."

As part of the action, The Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each, the Fed said.

In a shock to Wall Street, by a vote of 228 against and 205 for, the House just failed to approve the latest version of the $700 billion bailout bill. Why? Not enough Republicans backed it -- only 65 Republicans ended up voting for; they were running 2-to-1 against Democrats. Why not? Angry communications from their constituents saying they did not like it and a philosophical bent against bailouts. With the election weeks away, is this the Republicans last stand?

Who knows? But the outcome of the vote means that it's back to the drawing board for the bailout bill. Count me among those who believe that a better bill is possible -- that is, a bill that actually defines the problem(s) we face and offers a truly workable solution. I've posted about such a plan here.

Meanwhile, the Fed has injected $630 billion into global markets in the wake of the cratering of three financial institutions (FIs) in Europe. These include Belgian/Dutch insurer Fortis which received a $16 billion government capital injection; the nationalization of British mortgage lender Bradford & Bingley and $50 billion worth of guarantees for Hypo Real Estate Holding. And the Fed is adding $330 billion to its $290 billion currency swap program with global banks and $300 billion to its $150 billion Term Auction Facility (TAF) emergency loan program.

Talk about a call for a return to a more-accommodative monetary policy.

Investor Mark Mobius said the U.S. Federal Reserve should eventually cut its benchmark, short-term interest rate to 1% to boost the U.S. economy, Bloomberg News reported Tuesday.

"With oil prices beginning to soften, there may be a chance for them to give a boost to the economy by lowering rates again," Mobius told Bloomberg News Tuesday. "It think it's still in the cards, but no one really knows." Mobius oversees about $40 billion in emerging market equities as executive chairman of Templeton Asset Management Ltd.

The doubling of oil prices over the past year and the more than $480 billion in housing-related, credit market write-offs are viewed by many economists as the primary culprits in the U.S. economic slowdown, a slowdown now beginning to dampen global growth, also. Oil prices have retreated about 20% from record-highs, falling to $118 per barrel early Tuesday morning, but unlike Mobius, economist David H. Wang isn't convinced the Fed should hit the 'accommodative button' just yet.

Too soon to lower interest rates?

"I think it would be premature for the Fed to ease rates further. The Fed has used new mechanisms, including the Term Auction Facility and the Term Securities Lending Facility, to help maintain financial system liquidity and the orderly function of markets, and so as long as no further stress events occur in the credit markets, I think they should stand pat on rates," Wang said.

BNP Paribas, which helped signal the global credit crisis that started one year ago this week, has emerged from the credit crunch as France's healthiest bank, Bloomberg News reported Monday.

BNP Paribas will announce Q2 financial results this week. While earnings are expected to be lower year-over-year, they will probably be better than those of its rivals, Societe Generale SA and Credit Agricole SA, according to Bloomberg. BNP Paribas fell 1.76 euros to 59.77 euros in Monday afternoon trading in Paris.

About a year ago, on August 9, 2007, BNP Paribas halted withdrawals from three funds that invested in subprime mortgage debt. The bank's announcement proved to be the first of dozens credit-loss and write-down announcements by banks, mortgage lenders and other institutional investors, as subprime assets went bad, due to defaults by subprime mortgage payers.

The losses and resulting credit crunch compelled the intervention by the world's major central banks. The U.S. Federal Reserve, European Central Bank, Bank of England, Swiss National Bank and Bank of Canada made hundreds of billions of dollars available in specialized loans through conventional monetary policy tools and via new, special 'facilities,' in an effort to maintain credit market liquidity and prevent bad bank/mortgage lender business models from undermining healthy sectors and the broader economies in the United States and the European Union.

Economic growth is the major concern today

London-based economist Mark Chandler told BloggingStocks Monday that concern about credit markets freezing up again has diminished, but concern about the impact of the housing sector's slowdown on broader economies has not.

U.S. Federal Reserve Chairman Ben Bernanke said Tuesday the world's most powerful central bank may extend securities dealers' access to direct loans from the Fed into 2009 as long as emergency conditions "continue to prevail."

Bernanke, speaking Tuesday in Arlington, Virginia, at the FDIC Forum on Mortgage Lending for Low/Moderate Income Households, said "the Federal Reserve is strongly committed" to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end."

Further, Bernanke also said the Fed would "take a leading role" in any liquidation process for a failing investment bank.

The Fed, and other U.S. Government institutions, as well as other major central banks, are in the midst of dealing with the aftereffects of the end of the housing boom in the U.S., which led to a surge in mortgage foreclosures and related asset-back defaults.

Bloomberg News reports that the Fed is increasing its so-called Term Auction Facility (TAF) by 50% to $75 billion. The reason? The program, which makes emergency loans to banks saddled with asset-backed securities (ABS) such as collateralized debt obligations (CDOs), is busted. That's because the TAF is designed to lower borrowing costs but it has accomplished the opposite.

This comes in response to criticism from a Stanford University economist, John Taylor, who wrote in a study last month that there is "no empirical evidence" the TAF has reduced the premium that banks charge each other to lend cash for three months. In fact, last month's TAF auctions were 2.82% and 2.87% -- above the then-2.5% rate on direct loans through the Fed's discount window. This "seeming anomaly" of the higher rate may have resulted from banks' willingness to pay a premium to avoid the stigma of borrowing from the Fed's discount-window.

This means that despite all the happy talk on Wall Street, we are not out of the woods by any stretch of the imagination. As I pointed out here, investment banks and hedge funds borrow $32 for every dollar of capital. If they owned just those dodgy securities, a mere 6% drop in the $6.1 trillion market for CDOs would wipe out their $340 billion worth of capital.

The U.S. Federal Reserve Friday announced an increase in the amounts auctioned to eligible depository institutions under its biweekly Term Auction Facility (TAF) from $50 billion to $75 billion, starting with the auction on May 5.

The action brings the amounts outstanding under the TAF to $150 billion, the Fed said.

In addition, the Fed also authorized further increases in its existing temporary reciprocal currency arrangements with the European Central Bank and the Swiss National Bank. The arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the ECB and the SNB, respectively, representing increases of $20 billion and $6 billion. The Federal Open Market Committee (FOMC) extended the term of these reciprocal currency arrangements through January 30, 2009.

Furthermore, the Fed also authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers can now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial mortgage backed securities and agency collateralized mortgage obligations, beginning with the TSLF auction on May 7, 2008.

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

The compelling question following the Fed's action, in conjunction with the world's other, major central banks, is whether it will work. Will it be enough to get the U.S. economy moving again?

And as is so often the case in economics, the answer depends on three unknown factors, a pair of economists told BloggingStocks Tuesday. (In an initial review, the market appeared to signal its approval of the Fed's action, with investors sending the Dow 300 points higher to 12,156 in late Tuesday afternoon trading. )

New Fed tool: TSLF

First, the Fed's new Term Securities Lending Facility should convince bank dealers that liquidity should not be an issue, economist David H. Wang said Tuesday. "No bank or bond dealer should fear that they won't be able to find financing. That should improve bond market liquidity," Wang said. In addition, the Fed's willingness to swap U.S. Treasuries for mortgage-backed securities (MBS) should restore some trust -- but by no means total trust -- to the MBS market and help market participants price these securities, he said. The Fed's accepting private mortgage debt collateral speaks directly to where the market is stressed the most, Wang said. However, if MBS's are not pricing and trading, that would indicate continued concerns about liquidity, he said.

The dollar plunged to a new record-low of $1.5463 versus the euro Friday, in a global-wide greenback sell-off, before recovering at mid-day after the U.S. Federal Reserve took two actions to pump more money into the beleaguered U.S. banking system.

After the Fed's announcement, the dollar recovered slightly against the euro to $1.5343, but remained down about one-half cent against the British pound at $2.0144 and down about one-tenth yen to 102.60 yen against the Japanese yen.

U.S. jobs data sparks selling

Prior to the Fed's liquidity-enhancing actions, the currency markets drove the dollar down on speculation that the Fed would again lower benchmark, short-term interest rates by 75 basis points at its policy meeting on March 18 in an attempt to stimulate a U.S. economy that shows increasing signs of contraction. Those recession fears grew in the currency market and in the stock market after the U.S. Labor Department announced Friday that the U.S. economy lost 63,000 jobs in February 2008 -- the nation's largest drop in payrolls since March 2003.

However, the dollar recovered somewhat after the Fed, in a surprise move, took two actions to boost banking system liquidity. The Fed increased by $20 billion total the size of its next two Term Auction Facility auctions, known as TAF, to $100 billion, or $50 billion for each auction, to be held on March 10 and March 24.

Second, in an even-more surprising move, the Fed announced the start of new "28-day repurchase transactions" totaling another $100 billion. Further, the Fed said for the new 28-day loans, banks will be able to post as collateral U.S. Treasuries, agency debt, or agency mortgage-backed securities -- which are eligible as collateral in conventional open market operations.

The U.S. Federal Reserve on Friday announced that it's increasing the March 10 and March 24 term auction facilities to $50 billion each to address heightened liquidity pressures in term funding markets, the central bank announced.

The decision represents an increase of $20 billion from the amounts that were announced for these auctions on February 29. The Federal Reserve will increase these auction sizes further if conditions warrant, the Fed added.

Also, the Fed said in order "to provide increased certainty to market participants, the Federal Reserve will continue to conduct TAF auctions for at least the next six months unless evolving market conditions clearly indicate that such auctions are no longer necessary."

Economic Analysis: Friday's decision indicates the Fed believes banks need more short-term liquidity, given continued tight credit conditions and concerns about subprime loan and related asset quality.

The U.S. Federal Reserve will conduct two auctions of 28-day credit through its Term Auction Facility in March, the Fed announced Friday, in a statement.

The Fed said it will offer $30 billion in an auction on March 10, 2008 and $30 billion in an auction two weeks later, on March 24, 2008.

The Fed also reiterated its support for the term auction facility policy. The Fed said: "The Federal Reserve intends to conduct biweekly TAF auctions for as long as necessary to address elevated pressures in short-term funding markets. Decisions regarding auctions in April will be announced by Friday, March 28."

With home foreclosures expected to increase in 2008 as the second wave of variable interest rate mortgages reset, an influential member of Congress is expected to introduce legislation that would enable the Federal Housing Administration to buy at-risk loans, enabling them to be refinanced and preventing homeowners from being foreclosed upon, The Financial Times reported Wednesday.

U.S. Congressman Barney Frank, D-Massachusetts and chairman of the House Financial Services Committee, is floating a $15 billion initiative that would authorize the FHA to buy as many as 1 million at-risk mortgages, The FT reported. Some loans, such as those for investment properties and vacation homes, would not be eligible for the program.

The overlooked FHA

Overlooked during the "Roaring 1990s" economic expansion and this decade's housing boom, the Federal Housing Administration is a Depression-era agency that insures loans made to borrowers with poor credit.

More than half the collateral backing cash advances made by the U.S. Federal Reserve to U.S. banks is in the form of loans, not securities, the Federal Reserve Bank of New York told The Financial Times.

Economists and analysts had speculated that banks would post only complex housing-related securities -- including mortgage-backed securities -- that they could not refinance elsewhere.

That has not been the case. The Federal Reserve Bank of New York told FT that since the credit crisis began, banks had continued to provide a wide variety of assets as collateral -- including U.S. Treasuries, other government and agency-backed securities, and private-label mortgage-backed securities.