The New York Times and the Financial Times lead with the dollar tumbling to record lows on Fed chief Bernanke’s testimony that he’s more focused on fighting a recession than taking on rising inflation.

The euro reached $1.51 yesterday and the NYT says the dollar is at its weakest against a basket of currencies since 1973, after the U.S. quit pegging its value. The buck is off about a quarter from four years ago.

The Fed head’s semiannual exercise in obviousness, known as his testimony to Congress, enlightened markets with such gems as: “the economic situation has become distinctly less favorable,” consumer spending has slowed “significantly,” and credit is harder to get. But the papers say it was notable for its gloominess. The FT reports Bernanke testified that almost all the risks to his predictions were on the downside.

The Wall Street Journal places the dollar/Fed story sixth in its front-page Business & Finance column, and wedges Bernanke’s testimony into an A1 story led by an exclusive interview with Treasury Secretary Paulson who decries those advocating government rescue plans for homeowners.

Bernanke acknowledged the peril of cutting rates while inflation is picking up and the dollar is weakening, but assumes that a slowing economy will put a damper on runaway prices, which on the producer side yesterday hit a twenty-seven-year high. Some analysts were sharply critical of the Fed’s decision, saying once the inflation genie is out of the bottle it’s very hard to put back:

“They’re doing the same stupid things they did in the 1970s,” said Allan H. Meltzer, a professor of economics at Carnegie Mellon University and the leading historian of Fed policy. “They were always saying that we’re not going to let inflation get out of hand, that we’re going to tackle it once the economy starts growing, but they never did it.”

The WSJ reports that the Bush administration, via Paulson, is arching its back against the growing consensus that the government will have to step in to ameliorate the housing bust’s effects on citizens. Here’s a nice quasi-editorial juxtaposition:

Mr. Paulson, citing estimates that as many as two million Americans could lose their homes to foreclosure this year, predicted that the administration’s market-based approach will be enough to keep the situation under control…

“I don’t think I’ve seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars,” Mr. Paulson told The Wall Street Journal.

The WSJ reports that analysts say the government is trying to stick with its principles, but running out of ideas consistent with their tenets.

The papers all go big with news that the Fannie Mae and Freddie Mac regulator is loosening regulations on the quasi-governmental mortgage financers, enabling them to lend more two years after accounting scandals prompted a crackdown.

The NYT says the move may not make a huge difference because the regulator kept in place stringent capital requirements at a time when losses have eaten away at the lenders’ capital. Just yesterday, Fannie Mae reported that it lost $3.6 billion in the fourth quarter, and Bloomberg reports Fannie may need to raise capital to meet its reserve requirements.

But the WSJ writes in its second paragraph that regulators signaled they may loosen those capital requirements on the companies, which goose U.S. home lending by buying up mortgages and guaranteeing others, enabling banks to free up their balance sheets for more lending.

The NYT notes how much things have changed in the last several years in this market:

Since the credit markets seized up, Fannie and Freddie have regained their central role in mortgage finance after losing significant market share to investment banks during the housing boom. They have issued the vast majority of mortgage securities sold in the last six months, because investors have lost confidence in deals put together by big investment banks.

The WSJ reports on the front of its Money & Investing section that new problems are hitting municipal debt, this time in the so-called variable-rate demand notes market.

These debt instruments are like auction-rate securities—the market in the news most recently for causing city and state interest payments to soar—in that they allow long-term borrowing but at (usually) lower, short-term interest rates. Unlike auction-rate securities, though, the banks that issue variable-rate demand notes guarantee to buy them if they don’t sell in the market. That’s no good for banks, which already have capital problems.

The Journal cites California as an example of a government getting slammed:

Last week, rates on $300 million of California’s variable-rate demand notes rose to 8.25% from 2% the previous week. “This is an amazing confluence of problems that no one expected to happen,” California Deputy Treasurer Paul Rosenstiel said.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.