The Administration speaks with forked tongue. On the one hand we have the Treasury Department now saying the crisis is over—but then the head of the Fed in Kansas City says interest rates may go UP if inflation keeps going up:

FIRST:THE FINANCIAL TIMES ON PAULSON

The credit crisis is entering its later stages, but the process of deleveraging in the financial system still has further to go, according to Hank Paulson, the US Treasury secretary. “I am encouraged. I am feeling better about the markets,” he told the Financial Times, adding: “In terms of the capital markets, I believe we are closer to the end than the beginning.” Mr Paulson said he took “some comfort and satisfaction” from the amount of capital that was coming into the banking system, both in the form of equity infusions into banks and private capital deployed to purchase assets such as leveraged loans. “There have been plenty of examples through history of where astute investors have come in and taken advantage of distress in the market to make good profits,” he said. But he said it was taking time for markets to normalise, partly because of the complexity of some of the credit instruments involved, but also “because of the increase of leverage in the system”.

‘The Worst Is Behind Us’: Paulson Joins Street Luminaries, Declares Victory (MISSION ACCOMPLISHED?)

With Treasury Secretary Hank Paulson and Merrill’s John Thain chiming in, there’s now near unanimity of opinion on Wall Street: The worst of the credit crisis is over.
Such comments seem outrageous given the latest batch of scary headlines from UBS, Fannie Mae, Legg Mason, Lazard, et al. But hope springs eternal on Wall Street, and the reality is the crisis in the debt markets has eased since JPMorgan’s Fed-engineered purchase of Bear Stearns, which Paulson called “an inflection point.” (Critics have used similar terms, but with a far different meaning.)

Meanwhile, even Henry “Mr. Sunshine” Blodget is starting to come around to the idea that the housing market may be hitting bottom, thanks to an op-ed by Cyril Moulle-Berteaux, managing partner of Traxis Partners, in The Wall Street Journal.

SEE VIDEO:

INTEREST RATES COULD RISE AS INFLATION SKYROCKETS

May 7 (Bloomberg) — Federal Reserve Bank of Kansas City President Thomas Hoenig said “serious'’ inflation pressures may compel the central bank to increase interest rates. The dollar rose against the euro.

“There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it,'’ Hoenig said yesterday in the prepared text of a speech in Denver. Consumers are gaining an “inflation psychology to an extent that I have not seen since the 1970s and early 1980s,'’ he said.

Hoenig’s warning supports speculation among investors that the central bank has finished its series of rate cuts after seven reductions since September. Policy makers last month lowered the benchmark by a quarter point and signaled they are ready for a pause, omitting a previous reference to “downside'’ risks to economic growth.

USA TODAY: Witnesses: Mortgage Lenders Abusing Court System

Mortgage lenders are abusing the bankruptcy court system by pursuing unjustified foreclosures against struggling homeowners, piling on questionable fees and misstating the amounts owed, witnesses alleged at a congressional hearing on Tuesday.The result is a systemic breakdown that increases foreclosures, raises the number of families losing their homes and threatens the integrity of the legal system, the witnesses told the Senate Subcommittee on Administrative Oversight and the Courts.Robin Atchley, a letter carrier from Georgia, said Countrywide Financial, the nation’s largest home lender, twice asked a bankruptcy judge for permission to foreclose on her home in 2006, even though “we were current on our mortgage payments.”

Countrywide’s Woes Add Doubt on Deal

Four months after Lewis, the chief executive of Bank of America, agreed to buy the mortgage lender Countrywide Financial for $4.1 billion, Wall Street is buzzing with speculation that he might reduce his offer for the troubled company or perhaps even walk away from the deal.The rout, one of the biggest one-day declines for the company since Lewis announced his blockbuster deal in January, was touched off by an analyst report urging Bank of America to abandon the acquisition because of growing problems at Countrywide, the largest home lender in the United States.

A GLOBAL MONETARY CRISIS IS LIKELY TO OCCUR BEFORE THE NOVEMBER ELECTION

INTERVIEW WITH KEVIN PHILLIPS: BAD MONEY

PETER MILLER: Guess What? Predatory Lending Is Not A Crime

Speaking before big-shot investors on Wall Street last week, assistant Treasury secretary Anthony Ryan said the marketplace needs to be protected against financial predators.

“While predation is the law of the jungle in nature, as civilized society, we need to have laws in place to protect investors and consumers,” Ryan told the Securities Industry and Financial Markets Association (SIFMA).

“Market integrity is critical for a sound and robust market,” he continued. “Market participants must know the playing field is level and the rules are fair. There is a real benefit to the existence and enforcement of broad anti-fraud and anti-manipulation authorities. Predatory lenders, rumor mongers, market manipulators, insider traders and others who seek to gain an unfair advantage must be identified and prosecuted.”

This is great stuff and you can readily agree with Ryan’s sentiments, but no predatory lender will ever be persecuted by the federal government. The reason? Predatory lending is not a federal crime.

Don’t believe it? Just take a look at the annual statistics for financial crimes. Not a single case of predatory lending.

In our system mortgage fraud — such as deliberately and materially inflating income or assets on a loan application — is a crime. But if a borrower qualifies for an FHA mortgage at 6 percent and is sold a subprime loan at 8 percent, the law says that’s not a crime and that’s not predatory lending. That’s just good business for a lender — though perhaps not so good for the borrower who now has far higher monthly costs and is much more likely to lose his home to foreclosure and bankruptcy and thus lower the value of neighborhood houses.

Our Treasury official says “it is important that regulators have broad authority to investigate and prosecute these actions. These measures instill confidence in market participants that the market is operating in a fair and transparent fashion where rules matter.”

GUESS WHAT?: IT SHOULD BE–FORECLOSURES RISE IN MASSACHUSETTS

The first three months of 2008 saw another record number of foreclosures in Massachusetts, according to the latest statistics.

The state saw 9,114 new properties enter foreclosures, up almost 38 percent over a year ago and the third record-breaking quarter in a row, according to data provider ForeclosuresMass.com.

More than three quarters of the state’s 351 communities saw foreclosure rates increase in the past year, with 73 municipalities seeing at least a 75 percent increase in filings.

“Despite all of the attention being given to the foreclosure issue, nothing has changed. In fact, things have gotten worse,” said Jeremy Shapiro, president and co-founder of ForeclosuresMass.com, in a statement

Overall, 32,349 Massachusetts homeowners were at risk for foreclosure in the past 12 months, a statewide increase of 44.78 percent.

AL SHARPTON ARRESTED IN PROTEST AGAINST COURT DECISION IN COP CASE

NEW YORK - The Rev. Al Sharpton was arrested at the Brooklyn Bridge on Wednesday as he and hundreds of demonstrators blocked traffic to protest the acquittal of three detectives in the 50-bullet shooting of an unarmed black man on his wedding day.

FBI Raids Special Counsel

mcclatchydc.com — FBI agents searched the home and office of U.S. Special Counsel Scott Bloch, seizing documents and computers as part of an investigation into whether he obstructed an inquiry into allegations of his own misconduct. Agents are looking into whether Bloch deleted his agency’s computer files to hinder an outside investigation of his treatment of employees, the officials said. Bloch, appointed in 2004, investigates allegations of retaliation and ethics violations by federal employees.

THE BASHING MACHINE AT FOX NEWS SOROS BAITS A SCHECTER

My kind of name sake Clif Schecter (he spells his name without two Hs) and author of the new book “The Real McCain: Why Conservatives Don’t Trust Him And Why Independents Shouldn’t” recounts a recent media experience.

Fox News personality John Gibson said I was one—which means, of course, it is true. On his radio show the other day, he opined that because I once worked at Brave New Films (which may get some George Soros money) and the publisher of my new book, The Real McCain, is a friend of Soros’, well then case closed. I am on Soros’ payroll, which is why one of the two cars my wife and I drive is a Subaru with 125,000 miles on it.

But this is a great anecdote to point out a larger virus that infects conservatism, and has for a long time now: Paranoia. For that, Soros is perfect. Jewish, of foreign birth, living in New York and a “financier,” he is a fourfer!

If only he were gay too.