Will The Other Shoe Drop?

yes, it will ... the only question is when.

Gretchen Morgenson's column in today's Times focuses on Fannie and Freddie. It's a tad on the sobering side and should not be ignored. As an example, were you aware that the treasury raised the limit on the amount of bailout money that can be allotted to these paragons of ignorance? The article also points to the losses that Freddie reported on Friday and how the trend is likely to continue.

Never one to toot my own horn, I did point out here and in letters to my congressional representatives (when there was time to do something about it) how a one percent rise in defaults would bankrupt the GSE's. Wouldn't it be nice if that's where the losses stopped? Instead, it's closer to four percent and rising. Remember, defaults in conventional single-family conforming loans averaged about 1/2 of one percent since the advent of the MBS programs at the agencies. Now, for Alt-A and adjustable rate loans combined, the default rate is over 10%.

The point is, at the GSE's, it's business as usual and they are THE bid in the secondary market. If they go away, there will be no mortgage market.

So, you have to ask yourself, has the other shoe fallen? What are treasuries and the gold market telling us, HUH?