The market is rallying big on news reports that Bush will support some kind of Dodd–Frank bill to bailout as much as $400 billion in sub-prime mortgages. CNBC is talking about the ISM, but I doubt that’s much of a factor. The economy is basically flat right now. Profits are soft. Exports and foreign earnings are bright spots. The bigger theme is the Fed’s move to reduce risk through its earlier actions with investment-bank discount-window operations. And now comes the likely FHA move to guarantee refinanced mortgages on a grand, unprecedented scale. It was in the Washington Post over the weekend and it’s front-page IBD this morning. My contacts confirm the White House movement. Stocks and the dollar are up; Treasury prices and gold are down. There’s a slight improvement in risk-taking. Swap spreads are narrowing. Treasury man Henry Paulson’s regulatory stuff is not a factor, except to highlight that the Fed is operating on its own judgment to backstop the financial system and take bad collateral. Wall Street wants this government assistance. They want the bailout. I prefer markets to bailouts, but there’s no stopping the Frank–Dodd locomotive. However, the GOP should demand a partial or full repeal of the Community Redevelopment Act (CRA) that was responsible for the substandard sub-prime loan creation in the first place, going back ten years ago. So far, however, no one wants to touch this hot potato.