Economist James Hamilton was pretty offended by the rough treatment of Federal Reserve Chairman Ben Bernanke last week at the hands of some U.S. politicians. But when he put up a defense of the Fed chief on his blog, he got an earful from readers who were critical of the U.S. central bank and suspicious over its role in the financial crisis and last year’s bank bailouts.

Some members of the House of Representatives Oversight Committee quizzing Bernanke last week voiced outrage over the Fed’s role in Bank of America’s takeover of Merrill Lynch. They claim the Fed covered up pressure on BofA to swallow massive Merrill losses in order to protect the wider economy.

Hamilton said they were trying to turn Bernanke into a scapegoat.

“These interrogations reveal more about those doing the grilling than they reveal about Bernanke,” Hamilton, an economics professor at the University of California, San Diego, wrote on his blog. “I see this as pure political theater, and I don’t like it.”

But some of his readers reckoned that the Fed chief, a former economics professor with whom Hamilton had corresponded in the past, is getting what he deserves.

“The question is not if the man is a good man. The question is, did he participate in a crime, the crime of knowingly help screw BOA shareholders out of millions?” argued one commentator. “I think he’d look good in orange. He can help the other inmates with their financial planning.”

What’s your take? Is Congress disrespecting Bernanke or did he have it coming?

The Obama Administration’s toxic asset plan got rave reviews from Wall Street yesterday, but not so much from a few Nobel-prize winning economists.

Economists Joseph Stiglitz and Paul Krugman separately blasted the plan. Stiglitz told Reuters that the plan will rob taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak.

“The Geithner plan is very badly flawed,” Stiglitz said. “Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

Krugman, a columnist for the New York Times who received his Nobel Prize in Economics last year, said of the plan: “This is more than disappointing. In fact, it fills me with a sense of despair … Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.”

Wall Street on one hand, economists on the other: What do you think about Obama’s plan? Leave your answer in the comments below, or send a Twitter message @reutersgr8db8.

More on the toxic asset plan:

• Factbox: Details of the plan
• Exclusive: Pimco to participate
• Obama plan resonates with hedge funds

If there's one thing you don't want to be, it's the next Iceland.

Since its currency, colossally indebted banking sector and economy collapsed in spectacular fashion in October, the country has become a byword for an economy that has truly hit the rocks.

Within weeks, banking problems and currency falls meant Hungary was being hyped as a "second Iceland", at least until a joint International Monetary Fund and European Union rescue package restored some stability.

Next to win the unwanted comparison was Ukraine.  Having lost at one stage half its value, the currency has somewhat stabilised -- although most foreign investors are very hesitant to hold Ukrainian assets again.  And like Iceland itself, Ukraine is now dependent on an IMF lifeline.

Now, it is Britain in the limelight.  The New York Times as well as Britain's Observer and Daily Telegraph newspapers have all made the comparison in recent days.

For people earning and saving in sterling, it is an uncomfortable place to be and nervousness is to be found in the strangest of places.  During a recent visit to a podiatrist, a Reuters correspondent found the conversation punctuated with speculation about the possibility of an IMF bailout for Britain and angst over cutbacks in the National Health Service footcare budget.

An old Chinese proverb states that it is better to take many small steps in the right direction than make a giant leap and fall back. Judging by the number of bank lending initiatives announced over the past three months, British policymakers are taking this to heart.

On Monday, Britain announced no fewer than eight measures to kickstart lending in its credit-starved economy. Despite pouring 37 billion pounds of public money into major banks last October and pledging hundreds of billions more in guarantees, the government had to admit it needed to take more credit risk off banks’ books.

Monday’s package is designed to be comprehensive.  It includes — amongst other things — a fund to allow the Bank of England to lend directly to businesses, a framework for boosting the money supply if needed, a guarantee scheme for asset-backed securities and the offer of insurance against potentially explosive losses.

None is a silver bullet and the devil will be in the detail. Much of the nitty-gritty of how these measures will work is still not known. 

 It is also likely to be a slow process. The Bank of England’s 50 billion pound asset-buying pot is one of the few measures to take effect immediately.  Analysts at BNP Paribas calculate this equates to just 2 percent of bank lending in Britain compared to a ten percentage point drop in lending in the last year.

One opposition politician, Vince Cable, likened attempts to kickstart bank lending in Britain to “giving a kiss of life to a corpse.” Colourful. But a revival in bank lending is indeed by no means assured. More steps may yet be needed.

Anyone up for a $395 million Rodeo Drive shopping spree? 

Apparently the latest recipient of U.S. Treasury cash is the City National Bank in posh Beverly Hills.  According to the Los Angeles Times, the bank is taking part in the government’s $250 billion cash infusion and made no promises about how it would use the $395 million it’s getting.

The government funding “clearly enhances our financial capacity to make acquisitions and … to lend to a larger degree,” Russell Goldsmith, chief executive of City National Corp, told the newspaper.

About 20 banks are expected to announce soon that they’re getting government cash in exchange for preferred shares. Some members of Congress have complained that Treasury is handing over the money with too few strings attached, and they want stricter rules on how the banks must use the money.

U.S. senators want bankers to eat their broccoli before gorging on taxpayer bread.

The Senate Banking Committee took a Treasury Department official to task for committing $250 billion of the $700 bailout money to buy stakes in banks without getting any guarantees that those firms wouldn’t pocket the cash or use it for acquisitions.

“I remain especially concerned that, in the Treasury’s zeal to make the capital injection program easily digestible for the banks, we’re feeding them a little too much dessert and not making them eat enough of their vegetables,” says New York Democratic Sen. Charles Schumer.

Schumer had welcomed the Treasury’s decision earlier this month to shift the focus from buying troubled assets to directly injecting capital in troubled firms, but like many of his colleagues thought there should have been more strings attached.

The senators were particularly distressed over news reports that several of the banks that took the government’s money said they were in no hurry to lend it out. If banks hoard the cash, that doesn’t provide an immediate lift to the economy.

Taking the beating on behalf of the Treasury was Neel Kashkari (above),  the wunderkind who was put in charge of the $700 billion bailout program.

“Secretary Kashkari,” said Sen. Richard Shelby, the Alabama Republican.  ”Why did Treasury not attach a requirement to increase lending as a price for receiving the government money?”

“We completely agree with the spirit of that and we want our banks to lend,” Kashkari said. ”But we also didn’t want to be in a position of micromanaging our banks.  We wanted to create a program where thousands of institutions across our country would volunteer to participate.  And if we came in with very specific guidance on you must do this, you must do that, we were afraid that we would discourage firms — discourage healthy institutions from participating.”

He did not specify which firms might still be considered “healthy” some 14 months into the credit crisis.

Kashkari also said it would be unwise to block banks from using taxpayers’ money to acquire weaker rivals.

“If we have a small bank, a failing bank, in a community, that bank is not in a position to write loans for its small businesses, its homeowners. If a larger bank, a stronger bank, is able to acquire that and capital is put into that combined entity, that community is now better served,” he said.

“So we have to be very careful about not discouraging prudent acquisitions because that can actually help us get through these troubled times that we’re in right now.”

Note to the M&A advisers: Eat your veggies. You’re going to need your strength.

What restrictions should the government put on banks who accept federal funds? Leave your answer in the comments section.

Democratic presidential nominee Barack Obama and Republican nominee John McCain meet tonight at Hofstra University in New York, their final scheduled appearance together before election day.

The third encounter was meant to be the debate to focus the economy and domestic issues. But the economy couldn’t wait.

The $700 billion government bailout was the first topic at the almost-didn’t-happen-first-debate with PBS moderator Jim Lehrer.

Tom Brokaw of NBC News selected his first question from Allen Shaffer, who asked about on the economic downturn and retirees at the Town Hall meeting.

CBS anchor Bob Schieffer moderates tonight’s debate, hours after the Dow Jones Industrial Average and the benchmark S&P 500 suffered their worst one-day percentage drops since the 1987 stock market crash .

And Federal Reserve Board Chairman Ben Bernanke told a group of economists in New York that policymakers may need to use their regulatory authorities to predict and curtail asset bubbles in the future so that we don’t see such wild swings in the economy.

What would you ask if you were in Schieffer’s seat?

The U.S. Treasury Department expects to name asset managers for its $700 billion financial rescue plan within days and is working “around the clock” to thaw credit markets, the program’s new chief, Neel Kashkari , announced Monday.They’ve tapped investment consultants Ennis Knupp and lawyers Simpson Thatcher to help out. Reuben Jeffrey, a State Department official, is going to be interim chief investment officer while chief financial officer for the Office of the Comptroller of the Currency, Tom Bloom, will serve as the program’s CFO.The Treasury’s Troubled Asset Relief Program, known as TARP, also has provisions for limiting executive pay packages.Treasury Secretary Henry Paulson (L) and Neel KashkariWhat advice would you give to officials at the Treasury?If you want to read Kashkari’s speech in its entirety, click here

With the U.S. approving a $700 billion Wall Street bailout and the UK offering up £88 billion to bolster its banks, you can be forgiven for forgetting about that pesky food crisis in the developing world that dominated the news a few months back.

But the issue is still very much alive in the corridors of the World Bank, which released on Saturday a report entitled Rising Food and Fuel Prices: addressing the risks to future generations .

While the report is quick to point out that people around the world are starving, there is also a sentiment that as rich countries scramble to fund their own bailouts, there will be cutbacks in humanitarian aid funding.

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