Dodd: Fed gets it, Treasury doesn't

Senator Chris Dodd, chairman of the Senate Banking Committee and struggling Democratic presidential candidate, met with Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson this morning to talk about the mortgage lending and credit market mess.

Apparently, Hank Paulson developed a glazed-over look or began staring out the window when the subject turned to people losing their homes.

According to this MarketWatch report, Senator Dodd commented, "The Fed gets it and understands it, but the Treasury doesn't", referring to his strong desire to keep people from losing their homes and to improve his poll ratings - neither of which are likely to happen anytime soon.

As the high-end real estate market is still going gangbusters in much of the country, it's easy to see how the head of the Treasury would find it difficult to relate - he's worth about two hundred times the combined Bernanke/Dodd households and these two are no slackers, each with a net worth somewhere around $2 million (with nice pensions to boot).

Ben Bernanke pledged to use "all of the tools at his disposal" to restore stability and confidence in financial markets.

According to this Bloomberg story, Dodd said "he didn't specifically ask Bernanke to cut the benchmark federal-funds rate, and Bernanke didn't pledge to do so."

Well, that's a good thing because the Fed is supposed to be independent.

The central bank has a "dual mandate" of price stability and full employment - based on both of these metrics, the Fed is doing a fine job at the moment. According to government statistics, price increases are moderate and jobs are plentiful - just don't ask an unemployed mortgage lender what health insurance costs these days.

Of course, people may not like the whole idea that rate cuts may not be forthcoming - Wall Street expects three of them in the next four months.

The entire country has been trained like Pavlov's dogs, so it seems, expecting a bail-out when things get a little dicey - that's the legacy of former Fed Chairman Alan Greenspan and it will be hard to make the saliva glands of millions of people respond differently to financial market distress.

Though judgment on the new Fed chief is being reserved here in the hope that he will be more like Paul Volcker than "the Maestro", it's probably only a matter of time until Ben Bernanke caves in and starts cutting interest rates.

What else can he do when most of the country and its elected representatives think that you can have strong credit markets and cheap money at the same time, just like Senator Dodd.