The $150 billion fiscal stimulus package that's winding its way through the U.S. Congress will not represent a panacea for the U.S.'s economic ills, an economist argued, but it will represent modest good news for one segment -- the beleaguered housing sector.

The fiscal stimulus bill currently under discussion in the U.S. Senate calls for raising Fannie Mae and Freddie Mac's conforming loan limit to $729,750 through 2008 from the current $417,000.

Conforming loans are conventional, fixed-rate mortgages for good credit borrowers that banks make that are eligible for purchase by Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). When Freddie and Fannie purchase these loans from banks, it "frees-up" money that the banks can use to grant mortgages to future borrowers, thus expanding the pool of funds available for mortgages.

Economist Steve Affinito told BloggingStocks Thursday that while it's important to underscore that the higher conforming loan ceiling will not eliminate the U.S. housing sector's recession, it is "a critical, essential step in the right direction," in his interpretation.

Key regulators at the New York State Insurance Department met Wednesday with U.S. banks to discuss raising new capital for bond insurers, a department spokesman said, Bloomberg News reported late Wednesday afternoon.

Talks in New York with unnamed banks are part of New York Insurance Superintendent Eric Dinallo's effort to stabilize the bond guarantors and bolster the market's financial condition, New York State Insurance Department spokesman Andrew Mais told Bloomberg News.

Market rallies on insurer meeting

Word of the meeting sparked a remarkable 600-point reversal rally on Wall Street, with the Dow closing the day up 298.98 points to 12270.17. The Dow had been down more than 300 points earlier in the day. The broader markets also rallied.

Billionaire investor George Soros said a major casualty from the U.S. subprime crisis will be the 60-year reign of the dollar-based credit boom, which he says will come to an end, Bloomberg News reported Wednesday.

"The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate today at the World Economic Forum in Davos, Switzerland, Bloomberg reported. "Now the rest of the world is increasingly unwilling to accumulate dollars.''

However, Soros was careful to point out that he believes the dollar is still the most important reserve currency in the world and will remain so, according to Bloomberg.

The global markets' sell-off that has resulted in more than a 5% decline in regional markets during the past two days has called into question a nascent theory regarding the global economy. Namely, that developing nations -- robust-growth economies in Asia, Latin America and Europe -- are "decoupled" from U.S. economic and financial conditions, with their growth rates independently achieved.

Markets from Tokyo to Shanghai to London slumped more than 5% over the past two days -- with some markets falling more than 7% -- on concerns that U.S. subprime mortgage and related asset defaults would send the U.S. economy into a recession. The Dow Jones Industrial Average today plunged more than 400 points in the initial hour of trading.

Amid the Dow's sell-off, the U.S. Federal Reserve, in an emergency monetary policy action, cut key interest rates Tuesday morning -- cutting both the Fed Funds rate and the discount rate by 75 basis points, setting the Fed Funds rate at 3.50% and the discount rate at 4.00%.

U.S. Treasury Secretary Henry Paulson in a speech delivered Monday said the Bush Administration was weighing how to provide stimulus to the U.S. economy - - including a possible fiscal stimulus package - - but added that the administration does not want to rush a package.

Paulson, speaking at an event sponsored by the New York Society of Securities Analysts, said the administration's immediate goal is to minimize the impact of the housing correction on the U.S. economy.

Paulson said the nation was facing an "unprecedented wave" of 1.8 million subprime mortgages scheduled to reset to sharply higher rates, and underscored that the administration's negotiated deal with the mortgage industry to freeze selected mortgage rate five years will help the housing market recover, and avert a possible market failure.

Once again, the ever-incisive Financial Times columnist Martin Wolf, an economist, identifies with laser-accuracy what ills the current market. The problem, Wolf argues, is not a lack of solvency but a lack of liquidity (i.e. 'panic').

Wolf does not deny that there have been bad loans (there have been) or that no companies will go out of business (some will). But the circumstance that froze credit markets, that caused quality corporate bonds to fail to price, and that leads to 100-point spreads between the LIBOR rate (what banks charge each other) and the ECB's benchmark interest rate, is rooted more in a lack of confidence, than a lack of sound economic fundamentals or a lack of resources.

A lack of liquidity

And a lack of liquidity or 'panic' is something that central bankers can address. With the above in mind, the U.S. Federal Reserve's plan, in consultation with the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Canada, to inject $40 billion via auctions into the financial system is appropriate and prudent. (Further, in addition to reciprocal currency arrangements, the companion central banks will take related actions, including the Bank of England's decision to accept a wider range of collateral on 3-month loans).

The U.S. Federal Reserve is likely to continue to cut benchmark short-term interest rates by another quarter-point Tuesday, but in the view of some economists and analysts, it would not be totally unreasonable for the Fed to implement a half-point cut.

Economist David H. Wang told BloggingStocks that recent Fed data "seems to be indicating a clear risk of a recession, which is the argument for a 50-basis point [half-point] cut."

Wang noted that while the futures market is pricing in two more 25 basis-point cuts at the Fed's January and March 2008 meetings, and also pricing in 100% odds of a 25 basis-point cut and 28% odds of a 50-basis point cut Tuesday, recent negative economic news/data points may weigh on the Fed on Tuesday, and perhaps carry the day, producing a half-point cut.

In a surprise decision, the European Central Bank Thursday left its key interest rate unchanged, keeping its refinance rate a 4% due to inflation risks.

Confounds chatter

The ECB's decision went against growing chatter in Wall Street circles Wednesday that the ECB, the Bank of England and the U.S. Federal Reserve would all cut short-term interest rates, as well as implement other coordinated measures, to counteract the contraction effects of subprime mortgage and related asset defaults on the world's largest industrialized economies, the European Union and the United States.

"The decision to stay flat was a bit of a surprise, but that doesn't mean there won't be a future cut," Andrew Resnick, independent currency trader, told BloggingStocks Thursday. "I think we'll still see coordinated action by the ECB and the Federal Reserve to maintain liquidity and keep overnight rates at typical levels. Also keep in mind that the Bank of England cut its rate, so maybe they're doing it sequentially to prepare the market for the new monetary policy."

There are days when the U.S. Federal Reserve probably feels like it's part of a well-researched, coordinated public policy effort to both keep the U.S. economy growing at an acceptable rate with low inflation, and serve as an engine for global growth. Then there are days like today, when the Fed undoubtedly feels like it's out there on its own, like that well-known bald eagle -- a solitary guardian amid ever-present risks and dangers.

The Fed meets December 11 to decide whether to continue to ease monetary policy. The consensus among economists and Wall Street analysts is that the Fed will lower key short-term interest rates by a quarter-percentage point to 4.5%, with some analysts predicting a half-percentage point cut by the Fed.

In an effort to stimulate domestic demand amid a U.S. economy slowed by subprime mortgage defaults, the Fed has twice lowered key interest rates this year, cutting the Fed funds rate -- the rate banks charge each other -- to 4.50%, and the discount rate -- the rate the Fed charges banks for short-term loans -- to 5.00%.

True, no one on the trading floor of the New York Stock Exchange Friday yelled, "It's a return to the 'Roaring 90s,' " but given the way the U.S. economy and the stock market have gone in 2007, it's a start.

The Dow Jones Industrial Average closed Friday up 59.98 points to 13,371.71 - - hardly the stuff of a headline, but it was a technically-significant day.

The Dow's accomplishment? On Friday the Dow closed above the critical 200-day moving average at 13,250.10 - - the toughest moving average to break - - for the third consecutive day. Technical analysts argue that three consecutive closes above the 200-day moving average is a bullish sign. [For background on the Dow and the 200-day moving average, click on this bloggingstocks link: "Fed be nimble, Fed be quick."]

Hence, the Dow has cleared a major technical hurdle. The 'three closes above 200' does not guarantee that the rally will continue, but it is a step in the right direction.

U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks and other lenders to limit the surge in foreclosures by fixing interest rates on loans to subprime borrowers, people familiar with the Thursday meeting said, Bloomberg News reported.

"We've all agreed that there should be some sort of standardized approach to reaching more homeowners faster," U.S. Treasury Department spokeswoman Jennifer Zuccarelli told The Associated Press.

Subprime mortgages worth about $362 billion are expected to reset to higher interest rates in 2008, according to BusinessWeek magazine.

Market chatter Friday speculated on the plan's form, with no consensus readily emerging so far. Some Wall Street analysts expect Paulson's plan to focus on middle-income loans, excluding higher-income borrowers on the belief that they will able to obtain better terms themselves, and excluding lower-income borrowers who would not be able to afford their mortgage, even after a refinancing. Other analysts suggested that the plan may be more encompassing -- "capping" or limiting interest resets to predetermined rates.

On the heels of U.S. Federal Reserve Chairman Ben Bernanke's comments on "renewed turbulence," many traders and investors across sectors now expect the Fed to cut key short-term interest rates when it meets on December 11, according to one currency trader.

"I won't give you all the technical indicators, but basically almost all of them are pointing to a rate cut by the Fed when it meets [on December 11]," Currency Trader Andrew Resnick told BloggingStocks Friday. "The issue now is whether the Fed continues to cut after the December meeting."

Markets rally

Stock rallied early Friday on Bernanke's comments, with the Dow gaining over 80 points to about 13,394 and the Nasdaq gaining about 4 points to 2,674. Meanwhile, the dollar gained slightly, improving to $1.4730 against the euro and rising to 111.07 yen against the Japanese yen.

"Typically, when the Fed indicates it's likely to cut rates that causes the dollar to fall, but in this case, the market is saying 'The Fed is going to help the [U.S.] economy grow faster,' which is bullish for the dollar," Resnick said. Resnick added that he was flat - - or had no currency positions - on Friday.

It looks like the Super SIV roadshow is about ready to start, with the Bank of America apparently taking the lead.

Left unanswered -- at least for the immediate future -- are compelling questions related to the fund's transparency, effectiveness, and cost.

The Bank of America (NYSE: BAC) announced Monday that it will lead efforts by Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM) to convince smaller competitors to help finance an $80 billion bailout of the short-term debt market, Bloomberg News reported Monday, citing two sources with knowledge of the matter.

Goldman Sachs Group Inc. (NYSE:GS) reported a 29% gain in first-quarter profit, handily beating analysts' forecasts and investors probably could care less. Wall Street is waiting on pins and needles to find out whether the largest securities firm escaped the black hole engulfing suprime lenders.

As Bloomberg News notes, Goldman Sachs is a lender to New Century Financial Corp. (NYSE:NEW), the suprime lender that can't pay its creditors. Shares of the Goldman have slumped 8.3% since February 20 amid concerns that the real estate market will fall because of higher interest rates resulting in a slowdown of the economy, Bloomberg said.

Not suprisingly, New Century shares were halted yesterday after plunging nearly 90% last week. Another subprime lender Accredited Home Lenders Co. (NASDAQ:LEND) plumetted 27% yesterday and plunged another 43% in pre-market trading.

Suprime lending is bound to come up over the next two weeks when Bear Stearns Cos. (NYSE:BSC), Lehman Brothers Holdings Inc. (NYSE:LEH) and Morgan Stanley (NYSE:MS) report earnings.