Fannie Mae -- the Federal National Mortgage Association -- was created in the 1930s to facilitate homeownership by buying mortgages from banks, freeing up cash that could be used to make new loans. Fannie and Freddie Mac, which does pretty much the same thing, now finance most of the home loans being made in America.

The case against Fannie and Freddie begins with their peculiar status: although they're private companies with stockholders and profits, they're "government-sponsored enterprises" established by federal law, which means that they receive special privileges.

The most important of these privileges is implicit: it's the belief of investors that if Fannie and Freddie are threatened with failure, the federal government will come to their rescue.

This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

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Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

Partly that's because regulators, responding to accounting scandals at the companies, placed temporary restraints on both Fannie and Freddie that curtailed their lending just as housing prices were really taking off. Also, they didn't do any subprime lending, because they can't: the definition of a subprime loan is precisely a loan that doesn't meet the requirement, imposed by law, that Fannie and Freddie buy only mortgages issued to borrowers who made substantial down payments and carefully documented their income.

AS PRICES have come tumbling down in metropolitan areas around the country, New York City, and Manhattan especially, has largely shrugged off the collapse. Foreclosures in Manhattan have been practically nil, and home prices and rents continue to rise in one of the nation's tightest markets.

But what out the outer boroughs and the suburbs?

As a small investor in Bear Stearns I read with amazement your approval of the government's orchestration of the takeover of Bear by JPMorgan ("Wall Street's crisis", March 22nd).

I would just as soon see Bear go into liquidation and get the leftovers of an operation that had a value of over $80 per share. With my downside being a loss of the offer of $2-10 per share, why not?

Even before the sub-prime crisis, there had been a frenzy of financial literacy campaigns. But is financial education really the answer? Not so, according to a new paper by law professor Lauren Willis. She believes promoting financial literacy does more harm than good. She highlights several reasons why even an educated consumer might make a bad choice. Actually, educated consumers may fare worse because they suffer from over confidence or take a false sense of security in their limited knowledge. According to Ms Willis promoting financial literacy actually harms consumers because it also absolves predatory lenders and the like of responsibility. They can claim their prey knew better.

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Ms Willis may underestimate how much many people do know. Olivia Mitchell and Annamaria Lusardi found many people do not even have the most basic financial knowledge. Most people do not know the difference between debt and equity, yet are responsible for saving and investing for their retirement. We have a population of people responsible for their financial future and ill-equipped to do so.

High school should teach you the basics to get through life. Everything from balance your checkbook, buying a car and taking out a mortgage. Things like how to change a flat, what a healthy diet is, how to apply for jobs and prepare for job interviews. There are tons of other various other life skills that everyone should pick up in high school. Think of it as bootcamp for reality.

Why make people learn trig when they can't figure out how to keep the root of their head?

With both parties in Congress voicing a new urgency to help millions of homeowners at risk of foreclosure, the Senate voted overwhelmingly on Tuesday to move forward with a package of housing legislation.

The measures in the package include an expansion of mortgage counseling, money for local governments to buy foreclosed properties, and a contentious provision that would allow bankruptcy judges to modify the terms of loans on primary residences.

The 94-to-1 Senate vote, while a procedural one, was a clear sign of a growing consensus among Congress, the Bush administration and financial regulators that further government intervention is needed to stem the crisis. The aim is to forestall further collapse in the housing and residential mortgage markets and safeguard the broader economy from a worsening downturn.

I'd love for the government to butt in and tell my boss that I deserve a raise while they're at it.

While New York Governor Eliot Spitzer was paying an 'escort' $4,300 in a hotel room in Washington, just down the road, George Bush's new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there's a BIG difference. The Governor was using his own checkbook. Bush's man Bernanke was using ours.

This week, Bernanke's Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks' mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers' bordello: Eliot Spitzer.

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The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.

Instead of regulating the banks that had run amok, Bush's regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of "federal pre-emption," Bush-bots ordered the states to NOT enforce their consumer protection laws.

Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly racial mortgage steering. Bush’s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.

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And that very same day the bail-out was decided – what a coinkydink! – the man called, 'The Sheriff of Wall Street' was cuffed. Spitzer was silenced.

Do I believe the banks called Justice and said, "Take him down today!" Naw, that's not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was "Wall Street Declares War on Spitzer" - made clear to Bush's enforcers at Justice who their number one target should be. And it wasn't Bin Laden.

Fasten your seatbelts. Late Sunday Evening, JPMorgan announced it would be buying Bear Stearns for $2 per share, less than 1/10th the traded value on Friday. The move was backed by the Fed, which assumed most of the risk, and simultaneously cut the rate for borrowing by a quarter percent. According to Alan Greenspan, the US now faces the worst financial crisis since WWII. Monday looks like a wild ride.

And who is really going to pay for it all? You and me.

Three prominent financial executives faced questioning from a House committee on Friday about the huge paydays that they earned from the subprime mortgage boom, even as their companies have lost billions of dollars and thousands of borrowers have lost their homes.

The questioning mainly fell along party lines, with Republicans apologizing for hauling such distinguished corporate officials before the panel, and Democrats questioning everything from the income gap in America to the particular bonuses, stock sales and compensation the executives were awarded.

Two of the three lost their jobs last fall after the collapse of the subprime market -- E. Stanley O'Neal, Merrill Lynch's chairman and chief executive, and Charles O. Prince III, his counterpart at Citigroup -- but left with sizable pay packages. The other, Angelo R. Mozilo, the founder and chief executive of Countrywide Financial, presided over the demise of a once high-flying company that is now being acquired by Bank of America.

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"There seem to be two economic realities operating in our country today," Representative Henry A. Waxman, Democrat of California, the committee chairman, said as the hearing opened Friday morning. "Most Americans live in a world where economic security is precarious and there are real economic consequences for failure. But our nation's top executives seem to live by a different set of rules."

The question before the committee, he said, was this: "When companies fail to perform, should they give millions of dollars to their senior executives?"

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The hearing shed some light on how Wall Street's compensation philosophy may have contributed to the mortgage boom. Corporate boards and compensation committees agreed to lucrative bonus plans that gave their leaders strong incentives to take big risks. Executives aggressively pushed their companies into lucrative businesses, like underwriting subprime mortgages and packaging the loans into complex securities. Then, as the housing and credit markets plummeted, those profits turned into enormous losses for shareholders. Wall Street's top executives still kept their pay.

"With executive compensation you get what you pay for and you pay for what you get," Nell Minow, editor of the Corporate Library, an independent research firm specializing in corporate governance, said in testimony prepared for the hearing. "If you make compensation all upside and no downside, that will affect the executives assessment of risk. It will make it clear to him that he can easily offload the risk onto shareholders. It's heads they win, tails we lose."

Home foreclosures soared to an all-time high in the final three months of 2007 and probably will keep rising, evidence of homeowners' suffering and the economic danger from the meltdown.

The Mortgage Bankers Association said Thursday the proportion of all mortgages that slipped into foreclosure set a record, 0.83 percent, from October through December. The previous high, 0.78 percent, came in the July-through-September period.

''Clearly it's the worst it's been,'' the association's chief economist, Doug Duncan, said in an interview with The Associated Press.

At the same time, more homeowners fell behind on their monthly payments.

The delinquency rate -- when payments are at least 30 days past due -- for all mortgages climbed to 5.82 percent, the higher since 1985. The rate was 5.59 percent in the third quarter last year.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers swelled to all-time highs, too, in the fourth quarter.

If this continues, maybe I'll be able to afford a house one day.

I've written before about how the Collapse of the Jenga of Shit (aka the 'subprime' loan crisis) has raised the price of borrowing money--which is paid for with higher state and local taxes--due to the collapse of bond insurers and a liquidity crisis in municipal bonds. Now your property and sales taxes can take another hike courtesy of ratings agency like Standard & Poor's, Moody's Investors Service, and Fitch Ratings.

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Not only is the taxpayer getting the shaft, along with schools, parks, museums, and other public services, but this also distorts the value of municipal versus corporate bonds: corporate bonds are overvalued, while municipal bonds are undervalued. In an indirect way, this is an involuntary, undemocratic subsidy of corporate capital raising by state and local governments, simply because a private ratings agency says so.