On July 15, 2008, Federal Reserve Chairman Ben Bernanke sat in front of Congress for the second of his required Humphrey-Hawkins reports for that year. The original act meant for these to be more than bland economic obfuscation, where the original Full Employment and Balanced Growth Act of 1978 demanded monetary targets. The Fed stopped being able to produce them with any relevancy and meaning decades before. Now Bernanke had to answer for the consequences.

Except, of course, he didn’t. Instead, the Chairman kept to his platitudes about monetary policy being helpful and alleviating funding strain. Bernanke was cautiously optimistic following how he thought Bear Stearns was skillfully handled. He did acknowledge that significant problems remained, though especially careful to avoid all reasons why (because he didn’t really know).

These steps to address liquidity pressures coupled with monetary easing seem to have been helpful in mitigating some market strains. During the second quarter, credit spreads generally narrowed, liquidity pressures ebbed, and a number of financial institutions raised new capital. However, as events in recent weeks have demonstrated, many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain. In recent days, investors became particularly concerned about the financial condition of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.

The very same day Bernanke was talking about them to Congress, the US Securities and Exchange Commission was issuing an emergency decree to protect Fannie and Freddie ostensibly from those evil speculators who seem to only show up when things are really bad. An easy scapegoat, one had to wonder why the stocks of these quasi-government mortgage giants (along with those of primary dealer commercial banks) would have required such extraordinary restrictions against naked short selling.