Some Wall Street and Washington reports, starting with Paul Muolo. "At least five Wall Street firms are actively in the hunt to buy mortgage banking franchises, hoping to take advantage of profit-margin-challenged lenders that want to exit the business as the 'cycle' winds down."

"A new report by Morgan Stanley suggests that the love affair between brokerage firms and mortgages may be short lived. The report notes that some stockbrokers likely will 'experience frustration with cyclical, operational and regulatory frictions.'"

"We understand that loan 'buybacks' (whereby secondary market investors request that originators purchase back early payment defaults) continue to be a problem for many. One CEO of a small shop in Southern California told us he's had six buyback requests so far this year compared to just three in 2004."

"The OFHEO has directed Fannie Mae to suspend purchases of acquisition, development and construction loans until it fixes certain operational and control problems. In an interview with National Mortgage News last week, Fannie CEO Daniel Mudd said..he agreed that improvements are needed."

The Washington Post. "Senior executives at Fannie Mae are heading for the exits two years into a $10.6 billion accounting scandal that has no end in sight. Since the end of 2004, 44 of the top 55 executive positions at Fannie Mae have changed hands, spokesman Brian Faith said."

"At least 29 senior executives, including 15 who have left Fannie Mae, are under scrutiny for their possible roles in the accounting manipulation. Some may be forced to return bonus payments based on the faulty bookkeeping."

"OFHEO found that CEO Mudd attended a 2003 meeting at which earnings management appeared to have been discussed and that he didn't sufficiently look into an employee's complaints about the company's bookkeeping."

And Stephen Roach at Newsweek. "We draw a false sense of comfort by thinking of economics as science. We risk an equally false sense of security by relying on central bankers who claim they can guide economies with mechanistic policy rules. Inflation targeting is one of those rules. It's the rage in central-banking circles these days."

"Newly appointed chairman Ben Bernanke was one of academia's leading inflation targeters. Frederic Mishkin, a new Fed governor, is another luminary of this sect. They could well be a formidable team in pushing the Fed to adopt a price rule. This could be a big mistake."

"On the communications front, (Bernake) has committed a number of flip-flops that have left financial markets in confusion. If this record is indicative of Bernanke's communication skills, a shift to inflation targeting could backfire."

"Inflation targeting ignores the elephant in the room—the excesses of the global liquidity cycle and the related profusion of asset bubbles that has surfaced since the late 1990s. A CPI-type price rule could compound the negligence of bubble-prone central banks."

"America can't afford to have the Fed slip up right now. With chairman Bernanke waffling, the relative credibility factor could swing away from the Fed. That could lead to a loss of confidence in dollar-based assets, with serious consequences."

"On July 19, Bernanke will appear before the U.S. Congress to discuss the Fed's policy strategy. This is a time for discipline and consistency. A dollar crisis would be a steep price to pay for the folly of inflation targeting."