Between the two of them, Fannie and Freddie hold, manage and distribute something in the neighborhood of $5-to-$6 TRILLION dollars in mortgage paper. They've offloaded a good chunk of that into the bond markets, and a good portion of those bonds are held by foreign governments (such as the sovereign funds of Russia, and many mid- and far-eastern governments, and lots of the state and municipal and union pension funds, right here in the U.S.).

They're all taking VERY HEAVY HITS on this paper, already. It's only worth a fraction of what they paid for it. If I had to guess, off the top of my head, that's somewhere in the neighborhood of $3 TRILLION dollars. (What's a trillion bucks, give or take, between friends, right?)

By law, the U.S. government (or, whomever's responsible for issuing those bonds/notes, etc.) is liable for the full face value of that paper, if the current bond and noteholders can prove that there were fraudulent practices behind their issuance (in the first place).

This has already been proven...for all intents and purposes.

Therefore, whomever is maintaining ownership of those two entities--as of Monday that'll be you and me--assumes responsibilities for making good on any successful claims. Read this last sentence again.

On top of that, Freddie and Fannie currently hold something like $1 to $2 TRILLION in their own portfolio, in MBS's. (Mortgage-backed securities, etc.)

Lots of this paper is backed by housing stock purchased over the past few years at anywhere from 3% to 20% down(payments).

Unfortunately, in places like Nevada, California and Florida, residential real estate has devalued well beyond those percentages. Literally, millions of Americans have bought property over the past 5-10 years, taken out HELOC's and second mortgages (etc.), and they're currently upside-down in their homes (the paper they're making payments on is significantly more than the value of their currently devalued real estate).

So, if you wanted to be liberal with the numbers here, let's say the $1 to $2 trillion in paper that Fannie and Freddie currently hold, themselves, is now worth about 70% of its "booked value." If Fannie and Freddie hold $1 trillion in paper, that's a $300 billion writedown. If Fannie and Freddie hold $2 trillion in paper, that's a $600 billion writedown. Of course, in places like Nevada, California and Florida, many homeowners' property values have decreased by more than 50%! So, it depends upon what's actually behind the paper, once you drill down into it.

Who's going to pay for this $1-to-$2 trillion, give or take, in losses?

Go look in the mirror. Then go look at your children, your grandchildren, and your grandchildren's children.

Social security crisis? Healthcare and Medicare crisis?

Guess what? They've all just accelerated to Monday, September 8th, 2008.

Don't look too closely at our government's books, folks. In fact, you'll find copies of the 2008-2009 U.S. Fiscal Year Budget right alongside the latest Nora Roberts book at your local Barnes and Noble in coming months.

Oh, and what will happen to home prices as a result of all of this? With more foreclosures, and even less mortgage money around to spur ongoing purchases, properties will most likely continue to devalue for another presidential term...or maybe two. (Many economists are quietly predicting this fact.)

As we're already seeing, based upon the unemployment and declining retail (back-to-school) spending over the past few weeks, folks are now realizing they're upside-down in their homes, owing more to the bank than their property's now worth, and they've cut way back on their discretionary spending, too.

It's called a DEFLATIONARY SPIRAL. And it started to take hold about a year ago, despite the MSM's and the government's claims to the contrary.

With less demand for goods and services, prices come back down (after they've shot up for awhile). And, that's 'cause nobody's buying anything.

When nobody buys "stuff" retailers and service-sectors businesses go bankrupt. (That's already happening.) Then, more jobs are lost, and so on, and so on...

One more thing...when the private sector goes south, so do the tax revenues for our respective local and state governments (as well as our country, nationally).

In July, New York Governor Paterson held a quickly-called press conference to announce that his state (which is also my state), virtually overnight, had crossed the threshhold into a major fiscal emergency. Quarterly revenue(s) (Q2 '08) from the financial services sector (i.e.: Wall Street) dropped somewhere around $150 million from roughly $160 or $170 million dollars, in terms of projected quarterly tax payments from that sector, to something in the neighborhood of $10 million! What was already considered to be a budget crisis, has now become an "emergency."

What happens to municipal bonds, a traditional means by which governments obtain money in times of need, in scenarios like those set to dramatically escalate on Monday? Demand for municipal bonds, like virtually all other bonds, goes away.

This has already happened in towns like Vallejo, CA, which declared bankruptcy in the past year.

So, if you haven't figured it out here's what's going to happen: It's about to get much, much worse.

Read all about it right here, at The Automatic Earth.  Or, keep reading all the bullshit being pumped out by the government, the MSM and the corporate sector.

"Don't worry. Be happy."

Now where were we? Oh, yes...talking about Sarah Palin...

"We now return you to your regularly-scheduled programming."

UPDATE: Bondad, one of DKos' leading bloggers on the economy, has a decent piece on the rec list there, right now, entitled: "The Fannie/Freddie Bail-Out: A History and Overview." He's referring to the Fannie/Freddie matter as "bumpy ride." The reality is, this country's to a point where it's far beyond that, in terms of the severity of the situation before us.