udo-government agencies that fund mortgages in a big way. They are actually private companies but have the implicit backing of the US government and have parlayed that implicit backing into outstanding debts of $1.5 trillion dollars.

Those debts are leveraged 50:1, by the way, meaning that Fannie Mae and Freddie Mac have 2% collateral supporting their merry business.

This summer, accounting "scandals" rocked Freddie, and neither company is required by law to make normal corporate disclosures to the Securities and Exchange Commission (SEC) -- even though their stock trades on the New York Stock Exchange! It gets even worse: they are regulated by the U.S. Department of Housing and Urban Development (HUD)! Ho ho.

And ... their business has involved lending huge sums of money at the lowest interest rates in 40 years, with derivative wagers used to offset the risk of rising interest rates. But with 50:1 leverage, a tiny error would wipe out their balance sheets. That is where the fun really begins.

You see, the U.S. dollar has been tanking, big time, thanks to the Bush Regime treating the U.S. Treasury like its own piggy bank — or rather, behaving like a military junta in a banana republic.

Right now people aren't freaking out about the U.S. dollar falling because foreign countries still recycle their export earnings back into U.S. debts, such as debts of Fannie Mae and Freddie Mac. You can tell the worry factor is small because, though the dollar is falling, interest rates are stable.

If and when the disaster hits, the dollar will fall and the stock markets will fall but interest rates will rise. And when that day happens, a mere 2% jump in interest rates that Fannie and Freddie cannot hedge away will mean that they are technically "broke."

Now, the government won't really want to allow Fannie and Freddie to stop creating mortgages, but according to the latest news, Congress isn't particularly interested in restructuring these casino-like corporations either.

>From the Bush Regime's perspective, it will be better to allow Fannie and Freddie to fail momentarily, and then swoop in and seize the assets — which can then be salvaged with money from the U.S. Treasury, and re-sold to FOB (Friends of Bush) for pennies on the dollar.

Nice theory? Crazy? Well, that's basically what happened in the Savings and Loan "crisis." Pennies on the dollar, baby. Hundreds of billions of dollars in free profits to connected insiders (anyone who wants to see the correct details, send an email...). Historians will recall the name of Neil Bush in the S&L debacle.

Neil Bush served no jail time for that, either. He's still in business, but of course he'll never be able to run for public office. Why? Because he is a crook? No, because he got caught. (Heheh.)

© 2003, by the author.

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