U.S. Federal Reserve Chairman Ben Bernanke is urging both mortgage lenders and government officials to step-up efforts to help homeowners avoid foreclosure, Bloomberg News reported Monday.

Bernanke, in a speech in New York on Monday night, also underscored his preference to have lenders forgive a portions of mortgages for selected struggling homeowners, Bloomberg News reported. Bernanke qualified his remarks by stating that the proposal should be tightly targeted to avoid providing an incentive for default.

Bernanke's speech came about one week after the Bank of America (NYSE: BAC), a major mortgage lender, announced it will modify at least $40 billion in troubled mortgage during the next two years to keep customers in their homes, Bloomberg News reported Monday. The action could help as many as 265,000 homeowners, the bank said.

Is the U.S. Federal Reserve about ready to pause its monetary-easing course, after next week's widely-expected 25-basis-point cut?

The emerging consensus appears to be that the Fed will, both to allow the world's most powerful central bank to assess the impact of its string of rate cuts over the past year and to save some 'interest rate ammunition,' should the U.S.'s anemic economy not show signs of a recovery in H2 2008.

If the Fed cuts key, short-term interest rates next Wednesday, it will be the Fed's seventh cut in eight months. Reductions to-date have pared a whopping 300 basis points from the Fed Funds rate to 2.25% from 5.25% in September 2007.

Help from Europe?

Given that the slowdown has been U.S.-centric, and caused in large part by the end of the U.S.'s housing boom, economist David H. Wang initially thought the Fed would be left to its own devices to jump-start demand. However, in light of recent data indicating that both German and French business confidence had dropped in March 2008, Reuters reported Thursday, Wang is now inclined to think that the European Central Bank will not stand-pat on interest rates much longer. "We're beginning to see the signs of a slowdown in Europe," Wang said. "I think another month or so of poor data and the ECB will be compelled to cut, despite some inflation pressure."

The ECB has kept its key, short-term rate, the refinance rate, at 4% throughout the Fed's easing cycle. A start of an ECB easing, Wang said, will both stimulate demand from Europe and give the Fed a window to "take a breather" and assess the impact of both monetary and fiscal policy stimulus in the U.S.

Further, the downside from the ECB maintaining a hawkish stance amid a Fed pause is very large for Europe, Wang argued. If the ECB does nothing and Europe's economy slows to a crawl, it will have missed valuable time to stimulate needed demand. Conversely, if the ECB cuts rates and later finds that growth remained adequate, it could always re-raise rates, "to keep the inflation genie back in the bottle," he said.

While the markets were up at the end of the trading day, there would be no other way to describe the day besides boring. The good news is that boring days are needed after periods of major volatility.

Today's news could have easily been dominated by a rise in weekly jobless claims hitting a high not seen since September 2005, with a reading of 407,000. The market was only looking for 365,000 to 375,000. But taking the center stage were Ben Bernanke, Jamie Dimon, and Alan Schwartz all defending the bailout and buyout Bear Stearns Companies (NYSE: BSC) in front of Congressional hearings for a second day. Below are the unofficial closing prices for today's US exchange levels

• DJIA 12,626.03 (+20.20; +0.16%)
• S&P500 1,369.30 (+1.77; +0.13%)
• NASDAQ 2,363.30 (+1.90; +0.08%)
• 10YR-TBond 3.591% (+0.008)
• 52-week lows

Coca-Cola Co. (NYSE: KO) stock is falling as investors seem to be rotating money out of defensive stocks like KO and Colgate-Palmolive (NYSE: CL) and into more aggressive stocks. Yesterday's rally has continued this morning despite Fed Chairman Bernanke warning that a recession is possible. This could be a case of investors thinking that by the time anyone acknowledges a recession, the bottom has already happened in the markets. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on KO.

After hitting a one-year low of $48.05 last April, the stock hit a one-year high of $65.59 in January. This morning, KO opened at $61.44. So far today the stock has hit a low of $60.21 and a high of $61.44. As of 12:45, KO is trading at $60.47, down $0.97 (-1.6%). The chart for KO looks neutral and improving, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.

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.

U.S. Rep. Barney Frank, D-Massachusetts and Chairman of the House Financial Services Committee, Thursday introduced legislation to enable the Federal Housing Administration to insure and guarantee mortgages that have been written down banks and other mortgage holders, Rep. Frank announced in a statement.

Rep. Frank's proposal would permit the FHA to provide up to $300 billion in loan guarantees which could potentially result in the refinance of 1-2 million at-risk mortgages, preventing foreclosures, "protecting neighborhoods and help stabilize the housing market."

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 Federal Reserve announced this morning several measures to deal with the current liquidity crisis on Wall Street. It is creating a new Term Securities Lending Facility (TSFL) that will lend Treasury securities for 28 days as opposed to overnight under the current program. The key element of this program is that it will accept residential mortgage-backed securities (MBS) as collateral.

The Fed is also taking coordinated action with the other major central banks: The Bank of Canada, the Bank of England, the European Central Bank and the Swiss National Bank. It has also authorized increases in the currency swap lines with the European Central Bank and the Swiss National Bank.

These actions are significant for several reasons:

• The Fed, by accepting MBS as collateral, is now attempting to inject liquidity directly to the area that is the source of the credit crunch.
• It is extending the term in order to give additional confidence that funding will be available for a longer period of time. No one will lend unless they are certain that funding will be available. This addresses the issue.
• The Fed is taking action on a global basis with other central banks. This an additional measure to build confidence in the financial markets.

Sandra Pianalto is the President of the Cleveland Federal Reserve. Being in the heart of the old industrial belt of the US where a number of industries are shrinking or out of business may be taking its toll on her. Yesterday she said in a speech that "Because credit contractions can emerge and spread rather quickly, the central bank must be prepared to act in an aggressive and timely manner to counteract their effects," according to Reuters.

The language of her statement is a little more urgent than what the public is hearing from Fed chief Ben Bernanke. That may be because Bernanke has a PR role that regional Fed heads do not.

To some extent it is important that the Federal Reserve not be seen as panicking or viewing the economy heading into a deep recession. Things may be bad, but Bernanke should keep some of that to himself. His statements are too closely watched as bell-weathers of the Fed's future plans.

Bernanke is also worried that too many rate cuts could fuel inflation. Pianalto is willing to say that a slow economy will bring down inflation all by itself and should not be a major concern at the central bank.

Some of the senior people obviously think the economy is in more trouble than Bernanke wants to signal. What he really believes may never be known. If the Fed make two more cuts in rapid succession, it is a good bet that the he thinks a recession is already underway and may be hard to contain.

Douglas A. McIntyre is an editor at 247wallst.com.

U.S. stock futures were lower early this morning, pointing to another down day after chipmaker Intel warned on memory-chip prices and cut its profit forecast. On a day with little economic data coming out, investors will focus their attention to a speech from Federal Reserve chairman Ben Bernanke.

On Monday, stocks slogged along as the dollar weakened and two economic readings pointed to a slowing economy.The Dow Jones Industrial Average fell 7 points, or 0.06%, and the Nasdaq Composite gave up over 12 points, or 0.57%, while the S&P 500 managed less that a point rise, or 0.05%.

Fed chairman Bernanke is scheduled to speak at an Independent Community Bankers of America meeting in Orlando at 9:00 a.m. EST this morning. Bernanke will speak about the subprime crisis and preventing foreclosures. The Fed is scheduled to have a policy meeting on March 18 where monetary policy will be decided.

Federal reserve chairman Ben Bernanke continues to float his raft of economic strategies upon a wad of fake money. His song and dance has provided us with no real relief. Someone at some point must have convinced him that lowering interest rates is fun and exciting. He believed those lies and now it's his hobby. Has it provided any positive benefit of any real consequence in terms of the long term picture? I think not.

Today and tomorrow, the Federal Reserve Chairman shall be addressing congress. He's expected to tell them about how he has our economy under control. The fact is that it's near completely out of his hands. The one possible exception is that he's handily turned our dollars into wads of toilet paper. His major concern seems to be avoiding recession, which is an admirable goal, but someone forgot to wake the dear man to tell him recession is already here, aided by the fake dollars Bernanke keeps spewing upon the ground.

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.

The U.S. Federal Reserve said that despite inflation concerns, "relatively low" interest rates may be needed "for some time," the central bank announced Wednesday in the minutes from its most-recent meeting. At the same time, however, the Fed raised its inflation projections for 2008.

"Several participants noted that the risks of a downturn in the economy were significant,'' the Fed said in minutes of the January 9 and 21 conference calls and the January 29-30 policy meeting last month. "Many participants were concerned that the drop in equity prices, coupled with the ongoing decline in house prices, implied reductions in household wealth that would likely damp consumer spending.''

Last week, in Congressional testimony U.S. Federal Reserve Chairman Ben Bernanke indicated that the Fed will lower rates further if financial conditions and the availability of credit deteriorate.

Also in the minutes, the Fed termed the inflation statistics since the end of the year, "disappointing." The Fed now expects 2008 core inflation of 2.0-2.2%, up from the previous 1.7-1.9% estimate.

Further, the Fed lowered its 2008 U.S. GDP outlook to 1.3-2.0% from the earlier 1.8-2.5%.

As the saying goes, what if you invited everyone to a party and no one showed up?

That's a little like how the U.S. Federal Reserve feels right now. The Fed has lowered benchmark, short-term interest rates substantially - - including 125 basis points of reduction in January 2008 alone - - but so far, banks, stung by subprime losses, have been reluctant to ramp-up lending, CNBC.com reported Monday.

Patience advised

Still, economist David H. Wang took issue with those arguing that the Fed's rate cuts and ongoing term auction facility that haven't worked or weren't needed.

Concerning rate cuts, Wang told BloggingStocks Monday that the banking sector had to work through "a period of loan fright" - - an irrational fear of risk - - that is, in his view, the additive inverse of "the total neglect of risk" that characterized the earlier housing boom.

"Banks need some time to improve their balance sheets. Some may accomplish this through job cuts and by operational cut-back. Many will accomplish this through curtailed lending and tighter lending standards, at least for a short period of time," Wang said. "But in time, lending to businesses and individuals will resume its normal pace."

'Gradualism' vs. shock therapy

Second, the Fed's term auction facility - - which U.S. Federal Reserve Chairman Ben Bernanke has said will remain in operation "for as long as necessary" - - is working. "The term auction facility is doing exactly what it's supposed to do... it's providing short-term loans to banks who need it, who don't want to borrow from the discount window and who can't get the money from other banks who are afraid to lend," Wang said. "And in the process, bank operations are maintained, even as they slowly and gradually digest subprime defaults and related asset write-offs."

And that last point may be the key to understanding the outlook for a resumption of normal lending conditions, he said. Given the size of likely, problematic subprime loans - - some have put the figure at $500 billion - - and the preference for gradualism, it may be two quarters or more before normal lending conditions resume. Further, the correct place to look for the start of increased lending is not the stock market's level, but commercial activity: orders for new equipment, business expansion plans, and job growth / new hiring announcements.

And while some economists argue that it would be better if the financial services sector wrote-off problem loans quicker - - i.e. 'the sooner the better for economy,' Wang does not agree.

"Shock therapy may have worked in Poland's transition from a communist centrally-planned economy to a free-market economy but we're dealing with a magnitude difference in money here," Wang said with chuckle. "The Fed's goal here is to enable banks to gradually work the bad loans out the system, while maintaining the conditions for sustainable economic growth and not causing runaway inflation. And so far, that strategy is working, in my interpretation."

Ever want to just slap yourself silly for not buying what you know you should have bought in the first place? I'm going through that right now with MFA Mortgage (NYSE: MFA).

MFA has been able to avoid the whole subprime mortgage chaos and is riding the wonderful wave of the Bernanke rescue effort. It operates as a real estate investment trust, and it stands to benefit from further rate cuts. Oh man, I was thinking of buying this one last summer, but it seems to have put me in the position of should-I-chase-this-or-not. Check out the chart. Thank goodness I at least own the preferred MFA shares (NYSE: MFA-A). I bought those last summer below par value, getting in around $22. The shares are now trading well over $24, and they pay a nice coupon at par -- over 8%. I happen to own another mortgage entity, Newcastle Investment (NYSE: NCT), which has been discussed previously by Sheldon Liber.

I'm going to be watching the price action on MFA carefully the next few days, perhaps looking to get in. Its dividends have been rising, and on a down day like today, its stock is getting a nice bid (as of this writing, it is up 3% or so).