The business press paints the Federal Reserve as omnipotent. Maybe once it was. But events are likely to prove it has lost some of its mojo.

The nation's central bank controls a smaller piece of the global economy than in the last severe recession, in the early 1980s. And it no longer influences the price of oil as it once did.

Those seldom-acknowledged facts make its job more difficult, and the outcome of its efforts to fight inflation or keep the country out of a bad recession more uncertain.

Read the whole thing here.

The point is reinforced by former Fed Chairman Paul Volcker, who in an interview with the Dutch magazine FEM Business said this, in response to the question: What is fundamentally different now in comparison with the 70s?

“The old fashioned commercial bank function has been minimized and the market functions are more dominant. Trading has exploded since the 70s. In the US, bank credit used to be the large portion of the total credit business which is no longer the true. Those changes underlie the recent actions by the Fed. The old theory was that of you protect and stabilize the banking system, you do not have to worry about the rest, that can take care of itself without harming the economy. That is no longer true and that is why the downside seemed so big when Bear Stearns was in trouble.”

Thanks to author Edin Mujagic for the link.

Here's the piece that ran in the paper a couple months ago:

With dumpy Left Bank hotels going for $250 a night, the only way my family was getting to Paris this summer was if some French family agreed to clear out and let us sleep in their beds, eat off their plates and use their bathroom for free.

Fortunately, a nice couple in the 11th arrondissement - an advertising manager and a travel executive - said that was fine with them. Of course, while we're watching Les Guignols de L'Info on their TV, they'll be watching Denise Koch or Deal or No Deal on mine.Thanks to a weak economy and a Cameron Diaz movie, swapping homes is the way to vacation this year. Internet home-exchange services report big increases in people trying to stretch travel dollars with free, reciprocal housing arrangements.

"The single most costly item of any trip is accommodations," says Helen Coyle Bergstein, who founded home-trade site Digs ville.com in the 1990s. "If you eliminate that line item, that allows you to travel more often. To travel farther. Or to have a richer experience. Eat out more often. Do a side trip."

Or afford a trip you wouldn't have even contemplated if it came with a hotel bill.

"With an uncertain economy and rising fuel prices and a dropping dollar value, people wanting to take vacation are going to look at any way they can to save money," says Justin Bergman, senior editor at Budget Travel magazine.

It takes a certain faith. But I have yet to hear about a home swap that involved anything more negative than unreplenished toilet paper or divergent housekeeping standards.

Exchangers usually spend weeks or months communicating before the event, which builds trust and a mutual sense of responsibility.

The Parisians and I have shared a phone call and dozens of e-mails. We're shopping garage sales for car seats for their two little kids. They offered to find us cheap airplane tickets using their travel-industry connections. We traded family pictures.

Paul Larner and Rosita McKee of Catonsville got so chummy with a Texan they met through Home Exchange.com that the man offered to let them use his vacation condo for free, without any swap.

The couple and their children have exchanged in Paris, Telluride, Colo., and Limerick, Ireland.

A home trade "is a less-expensive way to spend an extended period in a different location," Larner said. "But equally if not more important, it's a different and more authentic experience - an opportunity to get to know another family. And all three exchange families that we've been involved with have been absolutely delightful."

Budget Travel recently commissioned six people to trade homes and report back. Presumably, the editors hoped to find a mixture of good and bad exchanges and dispense advice on how to avoid the latter.

But "their experiences were all so similar and positive, it didn't turn out to be a really compelling article," Bergman said.

Maybe the biggest potential headache is car trouble. Auto insurance companies usually cover exchangers as guests in your home, but check to make sure. And of course, says Bergman, lock up valuables or store them somewhere else.

Home exchanges were accomplished first via catalog and now on the Web. Intervac International and HomeLink International were founded in the 1950s and are still going strong. The Holiday, a 2006 movie in which the Cameron Diaz character swaps a Los Angeles house for one in the English countryside, popularized the concept.

You can browse home-swap Web sites for free, but most require membership to get contact information for would-be exchangers. (Digsville.com supplies the information to nonmembers and members alike.)

Memberships and listing your house online usually cost $50 or $100 a year, and many sites promise extended free listings if you don't score an exchange the first year. For the best response, you'll have to upload pictures of your house, but it's not difficult.

Swapping homes makes particular sense for European vacations this year. The weak dollar has made European hotels unaffordable for many Americans. Restaurants are problematic, too, and home stays let you save on food.

Fortunately, the cheap dollar is attracting hordes of Europeans. HomeLink.org lists 150 German houses and apartments whose residents want to switch with Americans. HomeExchange.com lists 35 Roman apartments and more than 200 homes in Paris, all occupied by people dying to exchange in the United States.

But not necessarily in Baltimore. "Baltimore is a bit of a challenge," says Larner.

It's more competitive than you might think, however. While most Europeans want to go to New York City, Florida or California, many are interested in Washington and the Maryland beaches. Baltimore and its suburbs - which of course have their own charms - are convenient to both.

Home trading is like dating. Good presentation and flirting raise the odds if you don't look like George Clooney - or own a four-bedroom loft in Greenwich Village. Larner gets three or four unsolicited exchange offers a year, he said.

We got a half-dozen proposals from Belgium, Holland and the French hinterland after listing our Howard County place on HomeExchange in October. I made five or six offers to places in central Paris before one young family said yes.

"What on earth were they thinking?" more than one person has asked me. Paris and Ellicott City aren't exactly peers in culture, cuisine, architecture and coolness. (Ellicott City does have one of the world's most popular Outback Steakhouses, however.) But the French couple worry that we're the ones getting the short end of the deal.

"I would like you to note that our apartment is very small," wrote Laurence, my Parisian interlocutor. "I wanted to emphasize this point because I know that houses are usually big in the U.S. I do not want you to be disappointed."

Ca ne fait rien, madame. Two bedrooms and a bathroom in Paris are a palace anywhere else. And the price is right.

Two weeks ago Madigan identified plants she said looked like Edison's that were continuing "high offer" shenanigans. She asked federal regulators to reopen the Edison case and look into it. Now, based on information from PJM Interconnection, which manages the grid from here to Illinois, she has withdrawn the allegation that the identified plants have continued the strategy. But she still contends that Edision still may be withholding power from the grid in some other fashion in an effort to influence prices.

UPDATE: Edison Mission spokesman Doug McFarlan denies this, saying; "We stand by our prior statements that we act in compliance with PJM bidding rules."

And Madigan still wants the Federal Energy Regulatory Commission to reopen the case.

From the new filing:

As discussed below, this new information indicates that the evidence proffered in the Initial Filing does not show that Edison continued to use the High Offer Strategy after April 2006. At the same time, the People renew their request to reopen the record in this docket to investigate the other evidence presented in the Initial Filing, which indicates that Edison Mission is withholding capacity resources owned and operated by its subsidiary, Midwest Generation, from the PJM day ahead market.

PJM has now disclosed new information which shows that certain generating units listed in the Affidavit are not owned by Edison Mission.

AND:

FERC should investigate the other evidence of economic withholding. While the new information provided by PJM resolves questions raised by bidding data that resembled Edison Mission’s High Offer Strategy, there are still significant questions about Edison Mission’s bidding behavior that remain to be addressed.

Ed Yardeni's note to clients this morning is typical.

Jay called me yesterday. We have been friends for many years. He is very plugged into what’s happening in the Middle East. He is very close to the top leadership of the opposition party in Israel. Jay expects that Israel will attack Iran with tactical support from the US before the end of the year. He says this is why the price of oil is over $140. Speculators may be behind the latest spike, but that’s because they are speculating that with the balance between supply and demand so tight, there is no room for any geopolitical flare-up let alone an attack on Iran. To buttress his thesis, he observes that the US isn’t even considering releasing some oil from the Strategic Petroleum Reserve in an effort to drop some barrels on the heads of the speculators. Bloomberg reports this morning that “Israel is increasingly likely to attack Iran's nuclear facilities this year, ABC News reported, citing an unidentified Pentagon official.” Furthermore, Admiral Mike Mullen, chairman of the US Joint Chiefs of Staff, was in Israel last weekend for meetings with Israeli military leaders, ABC said.

"We spent our check on car repair. Don't you know the engine failed the week before our check came. So we stimulated an mechanic shop (which is fine). Our original plan was to finish paying off the car that we repaired... Still working on that."

"We paid for our all inclusive fees at a Mexican resort. Dos mas cervezas, por favor, Senor!"

"We are putting aside the money to pay for our 10-month-old daughter's childcare. Our $1500 check will pay for about 6 weeks of care at 30 hours per week. Maybe a little will be left over so we can buy her some clothes that aren't Mommy's hand-me-downs!"

"I bought a Beretta M9 because I've been wanting to get a pistol for a long time. Finally got to do it. Now I'm hooked and saving for a Sig P220 in .40S&W."

"I purchased a Nikon D40 DSLR that I've been lusting over for almost two years. It's finally mine! Now I just need to figure out how to use this fancy piece of equipment..."

"I lost hours at work and used the stimulus as a buffer. Kind of a drag considering I had already purchased a used bicycle for $200 with the idea that the stimulus would pay for it. Oh well, with any luck the bicycle will pay for itself. I blame corporate america. Enough is enough. This has gone on too long. I want my hours back. "

I haven't found any that said: "I used the stimulus to increase by Roth IRA and 401(k) contributions."

Some highlights:

I am quite disappointed at how Windows Usability has been going backwards and the program management groups don't drive usability issues...

This site is so slow it is unusable... So I gave up and sent mail to Amir saying - where is this Moviemaker download? Does it exist? So they told me that using the download page to download something was not something they anticipated. They told me to go to the main page search button and type movie maker (not moviemaker!). I tried that. The site was pathetically slow but after 6 seconds of waiting up it came. I thought for sure now I would see a button to just go do the download.

So I did the download. That part was fast. Then it wanted to do an install. This took 6 minutes and the machine was so slow I couldn't use it for anything else during this time. What the heck is going on during those 6 minutes? That is crazy. This is after the download was finished. Then it told me to reboot my machine. Why should I do that? I reboot every night -- why should I reboot at that time? So I did the reboot because it INSISTED on it. Of course that meant completely getting rid of all my Outlook state...

What an absolute mess... So after more than an hour of craziness and making my programs list garbage and being scared and seeing that Microsoft.com is a terrible website I haven't run Moviemaker and I haven't got the plus package. The lack of attention to usability represented by these experiences blows my mind. I thought we had reached a low with Windows Network places or the messages I get when I try to use 802.11.

Edison Mission denied the plants were theirs.

"These are not our units," said company spokesman Doug McFarlan."We can't tell whose units they are, but we can tell you emphatically that they are not ours," said Edison Mission spokesman McFarlan.

Now, says McFarlan via email, PJM has confirmed that the plants do not belong to Edison. "Wanted to advise that today PJM contacted us and confirmed, at our request, that the specific units and bids cited in Mr. McCulloch's [sic] affidavit are not Edison Mission's," he said late Monday.

So I called PJM to double check. But PJM spokesman Terry Williamson wouldn't confirm what Edison Mission says PJM said, citing confidentiality rules. And my followup question -- "If the plants doing the suspicious bidding aren't owned by Edison Mission, whose are they?" was going nowhere with Williamson, either.

“I’m still bound by the confidentiality rules," he said.

Great. So there is prima facie evidence that somebody in the system that serves Maryland and a dozen other states is gaming the system. And PJM won't say anything about it -- not to exonerate a company that was publicly alleged to have continued doing something irregular, and not to identify the real suspect. There's your open, transparent wholesale electricity market for you. The only recourse consumers and state regulators have to pry this can open is the Federal Energy Regulatory Commission, which seems to be very happy with the way things are. FERC didn't even get to the bottom of Edison Mission's original irregular trading -- settling the case with a small fine for what it said was EM's lack of candor and misleading responses in the investiation.

What a mess. When electricity is ultimately reregulated, generation companies and pro-market policymakers will have only themselves to blame.

"The best new rock band I have heard in a long time."

-- Greg Mankiw, Harvard department of economics, former chairman, President Bush's Council of Economic Advisors.

Although the risks of offshore drilling are much harder to quantify than the benefits, I believe the shift in the benefit-cost ratio has been large enough so that the time has come to allow drilling. Norway and Great Britain, to take two examples, have allowed drilling in the North Sea for many years without suffering major environmental damage.

An excess profits tax that is expected to persist for many years discourages further exploration for oil simply because much of the profits on new oil production would be taxed away. In 1980, President Jimmy Carter introduced a windfall tax on oil companies to prevent them from profiting a lot from the high price of oil due to the Iran-Iraq war. An evaluation by the Congressional Research Service, a think tank that provides reports to Congress, concluded that the tax significantly reduced domestic oil production and raised oil imports. Disillusionment with the tax led to its abandonment in 1987. Yet the lessons from this fiasco have been forgotten, for since the post-Katrina rise in gasoline prices in 2005, members of Congress have made regular attempts to introduce legislation with a sizable excess profits tax on oil companies.

Two days ago, Illinois Attorney General Lisa Madigan said she had evidence a company called Edison Mission Energy continued a suspicious pattern of wholesale electricity trading long after it claimed to have stopped.

Why does this matter to Maryland?

Edison Mission sells electricity to the PJM grid, which stretches from the East Coast to Illinois. Potential price manipulation by Edison Mission or any other electricity producer in a deregulated marketplace can reap hundreds of millions in improper profits and raise prices for everybody who gets their power off the grid.

That includes you, Baltimore Gas and Electric customers.

Edison Mission denied Madigan's allegation yesterday, saying the troubling behavior she identified came from generation plants owned by other companies.

"These are not our units," said company spokesman Doug McFarlan.

Read the whole Hancock column here.

Iran's government does not reflect its people, and the Internet eventually will help change that fact. Years ago I had coffee at the United Nations with the press attache from the Iranian mission in New York. He liked to play backgammon online. He played with people all over the world. Israelis? I don't remember. But he believed the Net would help bring people together and heal the globe's wounds. It hasn't happened yet, but the Internet is a force for good.

The indictments of two former Bear Stearns Cos. hedge-fund managers are expected to cite a personal email sent from one to the other suggesting that the funds were headed for the rocks -- four days before they told investors there was little to worry about.

Fund manager Matthew Tannin emailed his more senior colleague Ralph Cioffi that he feared the market for complex bond securities in which they had invested was "toast." He suggested they discuss the possibility of shutting down the funds, according to the email, which was sent from Mr. Tannin's private account.

Four days after the Sunday-morning email, Mr. Tannin told fund investors on a conference call that he was "quite comfortable" with their holdings. Mr. Cioffi used similar language.

Do hedge fund managers owe investors the same duty of faith and candor that sell-side analysts owe smalltime stock investors? I don't know the answer. But generally the regulation of hedge funds is vastly different from the regulation of other investments. Hedge fund investors are wealthy and presumed to be able to fend for themselves in choppy waters. If what the Journal says is true, prosecutors are pursuing a line similar to that of Eliot Spitzer when he went after analysts for privately calling tech stocks junk -- even as they were promoting them to investors. But recommending WorldCom to little old ladies and potentially shading investment evaluations for hedge fund partners -- who knew well and truly what they were getting into -- are two different things.

Bottom line: The days of cheap energy are over, folks. Gas may go down to $3.50 a gallon by this time next year, but you'd be wise to trade in your SUV for an economy car. And you'd be wise to avoid building that new addition to your home and put the money instead into better insulation.

There probably are manipulation shenanigans going on, and they should be investigated. Booms like this always bring fraud and overreaching. But at most they are minor factors.