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Where is YOUR Money Going?


Banks and the Fed are refusing to tell you...

Monday, November 10th, 2008 - By Ian Cooper

You'd think that after the American public has been put through the ringer, there'd be better transparency from the Fed and corporate America.

But they just don't seem to care about you or me. 

And it's not the Fed's money.  It's yours. 

We just learned that the Fed is refusing to identify $2 trillion of emergency loans that you and I gave them, or the troubled assets that the Fed is accepting as collateral.  Eight of the loans were made in the last 15 months, while we were shoulder-deep in a financial crisis.

And the banks that received those loans are opposing release of information because it could signal weakness and trigger short selling or a bank run.

This comes after Bernanke and Paulson said they'd comply with congressional demands for greater transparency after we gave them $700 billion for the bailout.

Oh, and you'll love this.

"AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan, according to people close to the situation."

Here's more.


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Meredith Whitney Says Banks are Still Expensive


We're in for a rude awakening, she says.

Thursday, November 6th, 2008 - By Ian Cooper

It was Halloween 2007 when Meredith Whitney suggested that Citigroup was a growing train wreck since the ratio of tangible assets fell to 2.8%, the lowest in decades.  She even said Citigroup may have to cut its dividend, raise cash, or sell assets to raise more than $30 billion to raise capital.

And she was right.  The stock, still a train wreck, has lost about 50% since she spoke.

But Citigroup wasn't the only bank to feel her wrath.  No bank was safe from it.  The only benefit was that she was right, warnings investors to stay away from banks like Citigroup.

Even these days, thanks in part to a weakening economy and increasing regulation, Meredith Whitney believes financial stocks are going to get hit again... sentiment we've shared in Options Trading Pit, as well.

Here's more of what she shared with Newsmax.com:

"Banks simply won't be able to provide the kind of easy credit that consumers had gotten used to over the past five years. That means income will have to go down, even though Wall Street expects banks to grow income from here.

"The market has accepted the fact that the securitization market is not coming back. That's a huge portion of lending for consumers," Whitney told CNBC.

"Eighty-five percent of the lending is for mortgages, about 50 percent of the lending is for credit card loans."

As a result, the consumer credit market as most people understand it shrinks dramatically, Whitney warned.

"What we're actually going to see going forward is contraction in the overall mortgage market. That's never happened," she said. "In the credit card industry, you're going to see $2 trillion in credit lines pulled out of the system."

"For a person who had credit for the first time in the last 15 years, you're going to see credit taken away from them by a large degree. We've never seen that before in this country."

Add in coming job losses and a looming and painful recession, and banks simply have to make less money. As the asset bases of banks shrink, cost-cutting won't be able to keep up.

The problem for investors, Whitney says, is that Wall Street now expects the banks to do the opposite - make a lot more money, just like before the crunch.

"My estimates are anywhere from 30 percent to 70 percent below the Street," Whitney says. "We're in for a rude awakening that may result in a slow grind down for these stocks."

The banks, which have already tapped tens of billions from the government to shore up balance sheets, will come back for capital again within nine months, Whitney predicts.

"So, effectively, you have a highly regulated utility that pays no dividends," she says.

 


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Shafted by Lehman? Get in Line.


Lehman even bounced a $5,750 check...

Monday, November 3rd, 2008 - By Ian Cooper

Once the number #4 U.S. investment bank, Lehman was once on top of the world, as a Wall Street titan with an impeccable reputation that had weathered every financial storm and every Great War of the last 150-plus years... until 2008.

That's the year top Lehman brass worked every last angle to convince shareholders everything was okay...  even as they spent millions on limos, ballgames, golfing, fitness, and luxury hotels.

The bank even tried to convince investors that it didn't need new capital to survive... and that its real estate portfolio was properly valued on September 10, 2008.

But that was a lie, as they'd soon file for bankruptcy protection.

But we'll let Lehman executives explain themselves before all the prosecutors... the ones already lined up at the door, sharpening their knives and licking their chops.

And we'll let Lehman explain to the many creditors that they won't be getting paid, including the Red Sox, taxpayers, the Ritz Carlton, a fire extinguisher repairman out of Brooklyn, an employee day care center in Times Square... even Walt Disney.

Records also show that Lehman owed $625,000 to the New York Giants, Boston Red Sox, and the Chicago White Sox.

Even a 15-employee site design firm was screwed.  A check, dated September 5, 2008, and signed by Fuld (who earned millions for running the company into the ground) for $5,750 was returned as a bounced check "due to insufficient funds."

There are even claims for $353,653 from Equinox Fitness Club... A day care tab of $113,793 from a day care center.... A ski resort waiting for $94,473... A $239,671 bill from Ritz Carlton... A $597,859 bill from a spa... and a Fairmont Hotel bill for $620,250...

Hope Lehman execs enjoy whatever the judicial system hands them...


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We Called For This Disaster in February 2007


How Could Paulson and Bernanke Have Missed This?

Tuesday, October 21st, 2008 - By Ian Cooper

Remember when?    

FDIC Chairman Sheila Barr said we're in the 7th inning?

Richard Fuld told us the worse of the crisis is "behind us"? 

JP Morgan Chase's Jamie Dimond believed the market debacle is "maybe 75 percent to 80 percent over"?

Merrill Lynch CEO said the subprime crisis was "reasonably well contained"?

Or even when Morgan Stanley CEO John Mack says the 8th inning... maybe even top of the 9th?

Truth is, not one of them knew what they were talking about.

We're lucky if we're even out of the 5th inning of a double-header.

In the latest chapter of America's financial tragedy - a foul tale of extreme greed that's led to the widespread suffering of millions... banks have folded.  Jobs have been lost.  Consumers have stopped spending.  And the global community has suffered.

Fortunately, I've been warning readers of this impending crisis since February 2007. 

As soon as New Century Financial filed for bankruptcy, and plunged from $30 to less than $1 - a move that many of my readers profited handsomely from - the crisis began.

Oddly enough, though, very few people in corporate America or the government could see what was coming...  Not even Hank Paulson, who in 2007 said "we're at or near bottom" for housing again... and again.

Even Bernanke should've seen the crisis coming.  Instead, he ignored what should have been obvious, saying:

"We have spent a bit of time evaluating the financial implications of the subprime issues, tried to assess the magnitude of losses, and tried to determine how concentrated they are," said Bernanke in 2007.  "There is a sense that, although there is always a possibility for some kind of disruption ..., the financial system will absorb the losses from the subprime mortgage problems without serious problems." He also said he didn't expect the subprime problems to have significant spillover to the rest of the economy.

But I wasn't buying it, and wrote the following against Bernanke's and Paulson falsities in February 2007.

Truth be told, when it comes to an "improving" housing market, do yourself a big favor. Ignore the mainstream press, and Wall Street hot shots that would have you believing in a housing bottom, or the illusion of priced in lending weakness.

We're still not nearing a housing bottom, or an improving lending market.

Just ask companies like Lennar, KB Home, and DR Horton, who still don't see this mythical housing bottom. Or, just ask Mortgage Lenders Network USA, which just filed for Chapter 11 bankruptcy protection, becoming yet another casualty of the lending market in a slowing housing market.

As for the lending market, we were so bearish on the sector that we recommended that readers load up on New Century Financial (NEW) put options two days before the stock fell $14+. While readers already cashed out with 89% gains on the first half of the position, they're still holding the second half, watching as the stock craters even more.

Truth... Subprime is Doomed...

Among the worst hit lenders are the sub prime lenders, or those companies that make loans to borrowers with less than perfect or poor credit histories. While subprime lenders charged higher interest (two or three points higher than prime lenders) as insurance for the higher risk the borrower represented, rising foreclosures have left the sub-prime industry facing substantial fallout risks.

Subprime lenders could offer adjustable or teaser rates to those with bad credit. Loans like this made up 23% of the U.S. mortgage market in 2006 as compared to the 8% in 2001, according to Yahoo News. And it's now a big problem as one in five sub-prime mortgages are now ending in foreclosure, according to the Center for Responsible Lending as mentioned by Yahoo News.

The Lending Market has not bottomed... nor has it priced in all negativity.

I'd love to sit here and jump on the bullish housing bandwagon that dominates Wall Street. Really, I would. But I'm not a fan of flushing my money down the toilet.

In reality, the housing market has not bottomed. Subprime lenders are doomed. You can continue to listen to the delusional madness pouring from the mouths of Street analysts, and the mainstream press, or you can listen to the homebuilder CEOs and the subprime lenders that have gone belly-up because of a weak housing market.

It's your choice. But I'd go with the latter, though.

That's just an inkling of the tumultuous future for subprime lending.

But one thing's for certain - the worst is not over for subprime lenders, Alt-A, homebuilders, banks, retailers, consumers, and the global community.

I just can't understand how they missed something so obvious.

Oh well. What's done is done, right?  At least (once) trusted "depression expert" Bernake, Paulson, Wall Street, and government officials didn't put Americans on the hook for hundreds of billions of dollars on their oversight... oh wait.


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And We're On the Hook for This?


Check out Sec. 317 for a Good Laugh

Thursday, October 2nd, 2008 - By Ian Cooper

Under the bailout bill, Paulson could get $250 billion to start. Then, with congressional and presidential approval, he can get up to $350 billion. If he still needs more, Bush and Congress can authorize him to have up to $700 billion. 

And if you're interesting in what the bill includes... take a look.

My personal favorites are Sec. 308, 317, and 325.

Way to be discreet with our money...

Sec. 101. Extension of alternative minimum tax relief for nonrefundable personal credits.
Sec. 102. Extension of increased alternative minimum tax exemption amount.
Sec. 103. Increase of AMT refundable credit amount for individuals with longterm unused credits for prior year minimum tax liability, etc.
Sec. 201. Deduction for State and local sales taxes.
Sec. 202. Deduction of qualified tuition and related expenses.
Sec. 203. Deduction for certain expenses of elementary and secondary school teachers.
Sec. 204. Additional standard deduction for real property taxes for nonitemizers.
Sec. 205. Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 206. Treatment of certain dividends of regulated investment companies.
Sec. 207. Stock in RIC for purposes of determining estates of nonresidents not citizens.
Sec. 208. Qualified investment entities.
Sec. 301. Extension and modification of research credit.
Sec. 302. New markets tax credit.
Sec. 303. Subpart F exception for active financing income.
Sec. 304. Extension of look-thru rule for related controlled foreign corporations.
Sec. 305. Extension of 15-year straight-line cost recovery for qualified leasehold improvements and qualified restaurant improvements; 15-year straight-line cost recovery for certain improvements to retail space.
Sec. 306. Modification of tax treatment of certain payments to controlling exempt organizations.
Sec. 307. Basis adjustment to stock of S corporations making charitable contributions of property.
Sec. 308. Increase in limit on cover over of rum excise tax to Puerto Rico and the Virgin Islands.
Sec. 309. Extension of economic development credit for American Samoa.
Sec. 310. Extension of mine rescue team training credit.
Sec. 311. Extension of election to expense advanced mine safety equipment.
Sec. 312. Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico.
Sec. 313. Qualified zone academy bonds.
Sec. 314. Indian employment credit.
Sec. 315. Accelerated depreciation for business property on Indian reservations.
Sec. 316. Railroad track maintenance.
Sec. 317. Seven-year cost recovery period for motorsports racing track facility.
Sec. 318. Expensing of environmental remediation costs.
Sec. 319. Extension of work opportunity tax credit for Hurricane Katrina employees.
Sec. 320. Extension of increased rehabilitation credit for structures in the Gulf Opportunity Zone.
Sec. 321. Enhanced deduction for qualified computer contributions.
Sec. 322. Tax incentives for investment in the District of Columbia.
Sec. 323. Enhanced charitable deductions for contributions of food inventory.
Sec. 324. Extension of enhanced charitable deduction for contributions of book inventory.
Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds.
Sec. 401. Permanent authority for undercover operations.
Sec. 402. Permanent authority for disclosure of information relating to terrorist activities.
Sec. 501. $8,500 income threshold used to calculate refundable portion of child tax credit.
Sec. 502. Provisions related to film and television productions.
Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children.
Sec. 504. Income averaging for amounts received in connection with the Exxon Valdez litigation.
Sec. 505. Certain farming business machinery and equipment treated as 5-year property.
Sec. 506. Modification of penalty on understatement of taxpayer's liability by tax return preparer.
Sec. 512. Mental health parity.
Sec. 601. Secure rural schools and community self-determination program.
Sec. 602. Transfer to abandoned mine reclamation fund.
Sec. 702. Temporary tax relief for areas damaged by 2008 Midwestern severe storms, tornados, and flooding.
Sec. 703. Reporting requirements relating to disaster relief contributions.
Sec. 704. Temporary tax-exempt bond financing and low-income housing tax relief for areas damaged by Hurricane Ike.
Sec. 706. Losses attributable to federally declared disasters.
Sec. 707. Expensing of Qualified Disaster Expenses.
Sec. 708. Net operating losses attributable to federally declared disasters.
Sec. 709. Waiver of certain mortgage revenue bond requirements following federally declared disasters.
Sec. 710. Special depreciation allowance for qualified disaster property.
Sec. 711. Increased expensing for qualified disaster assistance property.
Sec. 712. Coordination with Heartland disaster relief.
Sec. 801. Nonqualified deferred compensation from certain tax indifferent parties.

And whether you're for or against the $700 billion bailout bill, we could see passage if 12 of those that voted "nay" change their votes at the next meeting.  And if you're a bit peeved at having to pay for this bill, we've included phone numbers for each.

They, according to Yahoo News, could include:

Rep. Rodney Frelinghuysen (R-N.J.)
Phone: (202) 225-5034

According to reports, he was originally a "yea" vote but reversed it, and called for more hearings and debates on the bill. 

Rep. Jim Ramstad (R-Minn.)
Phone: (202) 225-2871
Fax: (202) 225-6351

He voted against the bill, complaining that the debate had left "the final cost to taxpayers ... uncertain" and said he would prefer an insurance plan to a bailout.

Rep. John B. Shadegg (R-Ariz.)
Phone: (202) 225-3361
Fax: (202) 225-3462

Shadegg, according to reports "wants changes in mark-to-market accounting rules and an increase in Federal Deposit Insurance Corp. limits."

Rep. Steven C. LaTourette (R-Ohio)
Phone: (202) 225-5731
Fax: (202) 225-3307

He originally opposed the bill, and now wants to double the amount of FDIC insurance and allow U.S. companies "operating overseas to bring assets back to the United States."

Rep. Doc Hastings (R-Wash.)
Phone: (202) 225-5816
Fax: (202) 225-3251

He "voted no because there were still ‘too many concepts' and not enough details about taxpayer exposure."

Rep. Judy Biggert (R-Ill.)
Phone: 202-225-3515
Fax: 202-225-9420

"Like many other Republicans on the Financial Services Committee, Biggert voted against the bill. But Biggert has said Congress needs to act, and she has expressed support for some sort of government-backed insurance plan that would allow business, rather than taxpayers, to assume more risk."

Rep. Xavier Becerra (D-Calif.)
Phone: (202) 225-6235

"Becerra ultimately voted no because he "wanted to see direct protections for responsible homeowners" in the bill."

Rep. David Scott (D-Ga.)
Phone: (202) 225-2939
Fax: (202) 225-4628

"Scott said after the vote that he could back the plan if 1 percent of the $700 billion were set aside in a program to prevent foreclosures."

Rep. Hilda L. Solis (D-Calif.)
Phone: (202) 225-5464
Fax: (202) 225-5467

"With foreclosures in her district nearly tripling in the past few months, Solis said she opposed the bailout because it ‘lacks needed reform of bankruptcy laws' that may help keep people in their homes."

Rep. Shelley Berkley (D-Nev.)
Phone: (202) 225-5965
Fax: (202) 225-3119

"While Berkley voted no, aides said she would be inclined to support the bill if it placed "tougher restrictions on CEO pay." Aides also said she is looking for more specific language on the regulation of Wall Street."

Rep. Bill Delahunt (D-Mass.)
Phone: 202-225-3111
Fax: 202-225-5658

"Delahunt said he voted no because the bill would have done too much to help the firms that caused the problem. Delahunt wants to lessen the burden on taxpayers and has proposed assessing a transaction fee on lenders who turn over bad mortgage securities to the government."

According to Cape Cod Times, "U.S. Rep. William Delahunt said the $700 billion financial bailout package he voted against yesterday simply didn't do enough to help struggling homeowners.

Delahunt, D-Mass., who represents the Cape and Islands, said he opposed the bill because it aided the financial institutions that caused the crisis and held little relief for his constituents who were at risk of losing their homes.

He said the majority of Democrats in the House voted for the bill's passage out of "grave concern" for their constituents and the economy as a whole, but politics aside, he felt his vote was the right one.

"It didn't address the victims of the greed," he said when reached by telephone last night in Quincy. "It was more focused on aiding the financial institutions and those who profited and benefited from them."

Delahunt said that more time must be taken to craft a bill that includes assistance for homeowners, perhaps extending terms so people at risk of foreclosure can stay in their homes, or charging transaction fees to the financial institutions that participate in the plan, in order to take the burden off taxpayers who are being asked to foot the $700 billion bill.

"The financial institutions should pay, and they don't want to do it," he said. "We should take it out of their profits, not the income of ordinary Americans. Let's hold them accountable."

Delahunt said he did not know when the bill would be taken up again, but that discussions between Republican and Democratic leaders was continuing.

He said he hopes the bill's defeat will give congressional leaders more leverage. He also said it is important to fully diagnose what caused the crisis.

"I'm confident we'll come out with a better final solution than the one I felt compelled to vote against," he said. ‘We're going to get it done.'"

Rep. Stephanie Herseth Sandlin (D-S.D.)
Phone: (202) 225-2801
Fax: (202) 225-5823

"Sandlin ultimately opposed it because she thought it would give Treasury Secretary Henry Paulson a ‘vast amount of power' without "effective oversight.'"

 


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Rescue Bill Defeated


Dow Plummets 700 on 228-205 Vote

Monday, September 29th, 2008 - By Ian Cooper

After days of heated emergency rescue plan debate... After Hank Paulson plead at the feet of Pelosi... After Bush begged Republicans to pass it... The House defeated the $700 billion emergency rescue plan.  

Stocks plummeted more than 700 points on the news even before the 228-205 vote to reject the bill was announced.  A good number of "no" votes came from both sides of the aisle. 

Oh well... Back to the drawing board.

Here's more from the Associated Press:

"The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample no votes came from both the Democratic and Republican sides of the aisle.

Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite howls of protest from their constituents back home.

The vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that Bush had used a "call list" of people he wanted to persuade to vote yes as late as just a short time before the vote.

Lawmakers shouted news of the plummeting Dow Jones average as lawmakers crowded on the House floor during the drawn-out and tense call of the roll, which dragged on for roughly 40 minutes as leaders on both sides scrambled to corral enough of their rank-and-file members to support the deeply unpopular measure.

They found only two.

Bush and his economic advisers, as well as congressional leaders in both parties had argued the plan was vital to insulating ordinary Americans from the effects of Wall Street's bad bets. The version that was up for vote Monday was the product of marathon closed-door negotiations on Capitol Hill over the weekend.

"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it - not me.' "

With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs have focused the attention of world markets on Congress, Ryan added.

"We're in this moment, and if we fail to do the right thing, Heaven help us," he said."

 

 

 


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The Market's Falling House of Cards


Profiting in a Down Market Made Easy

Wednesday, September 17th, 2008 - By Ian Cooper

Perception is everything.

At least that's what the Treasury, the Fed, and Wall Street are banking on...

... Specifically, that you'll continue to dive head first into the growing pile of garbage they keep shoveling.

The reality, of course, is that nothing has changed. Housing and financial stocks are still in trouble. Soon we'll begin to hear that the "credit crisis is now behind us." And, just as they're hoping for, the naive individual investor will buy into a select few financial and housing stocks on the idea. Wall Street will try to convince retail buyers to do the same.

And just like every other "bailout," this crisis will get worse, investors will lose millions, and taxpayers will be on the hook, again.

Look, the current taxpayer cost for Fannie and Freddie now stands at a staggering $200 billion, as the number of foreclosures and delinquencies has surged to 4 million. Meantime, a big piece of that has yet to hit Fannie or Freddie's books. It'll be months on end before the U.S. Government makes any sense of Fannie and Freddie's accounting gymnastics. Moreover, delinquencies and foreclosures will jump even higher as unemployment rockets higher.

No way around it... 2008 is going to be a roller-coaster ride.

And yet, with the U.S. and global economies spiraling out of control, the opportunities to exploit these markets for profit will never be stronger than in the months ahead. Options Trading Pit subscribers will be there to reap the rewards.

In fact, so far this year, we're 12 for 13 on closed positions (Options Trading Pit and Options Pit Blog combined). And in 2007, I posted 4,500% cumulative gains from my options plays.

Have a look at a few recent gains cranked out for Options Trading Pit subscribers:

· 62% gains on Murphy Oil put options...

· 26% gains on CurrencyShares British Pound Sterling December 2008 put options, and...

· 95% and 49% lightning-fast gains on Lehman Bros. after it broke under its technical descending triangle.

Keep in mind-these gains were taken during some of the worst market conditions in recent history.

And these aren't isolated wins, either. Plenty more winning recommendations are to come.

But don't take my word for it. Have a look at what my subscribers are saying, straight from my email inbox:

"I started with $14,200. I paid for the service and 13 days later I earned the subscription fee back... and using your strategies I'm at $19,200..." - B.H.

"I kept my stops in place and was closed out at 4.90. I had bought them for 1.75. 100 contracts... a respectable 30 plus thousand gain." - DF

"I held on to your SPF trade for a 500%+ gain. Nice!" - EO

And then there's this email, which I received at 11:14 pm last night...

Ian, great work on both. Exited today for a 44% gain, thanks! Your heads up yesterday on your email was greatly appreciated. I watched it at opening and heeded your advice once it broke $13 I looked for the option play under $4 and before your email arrived today, I had just put in a buy on Jan 10 PUTS. I sold at the end of today not wanting to risk overnight hold as these guys usually make up some story next day to push stock back up. I exited with 45% gain. But wait...there is more, as I continued to watch the spirl I thought, I have to buy more, so I purchased Oct 10 PUTS and sold them for 30% return in 30 minutes...it was a very good day and thanks. Keep doing the great work!!! - DF

Look, I don't like to toot my own horn. But I do insist on sharing with my subscribers the realities of the markets as I see them unfolding. I called, for example, the top of subprime in 2007, the fall of the UK economy and banking institutions, and the major breakdown of the Dow.

But my latest prediction is worse than all combined.

I'm calling it the "Option ARM Fiasco of 2009," and it'll absolutely wreak havoc on the US and global economy for years to come... crushing retailers, banks, and many unwitting consumers.

But take heed. You can profit from the coming melee, starting right now.

Here's what I mean... My next trade is coming soon, and quite honestly I'm not sure how this company is maintaining its stock price. But rest assured, it won't. Currently treading water at $35 a share, we expect to see $20 in short order.

And I can't stress this urgently enough. To get in on this major profit play, you must act now... before it passes you by.

Subscribe now to my Options Trading Pit, and begin cashing in alongside a growing legion of OTP members who understand where the money is right now.

Options Trading Pit is options made simple. I'll tell you exactly what to do, when to do it, and how to come out on top.

Take your risk-free trial of Options Trading Pit by clicking on the link below. You'll be glad you did.

http://www.angelnexus.com/o/op/9018

Ian L. Cooper,
Investment Director and Managing Editor,
Options Trading Pit


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FNM and FRE Bailed Out... Winners and Losers


Nothing has changed. Housing and financial stocks are still in trouble.

Monday, September 8th, 2008 - By Ian Cooper

Fannie and Freddie are getting bailed out.

Whoop-dee-doo...

Nothing has changed.  Housing and financial stocks are still in trouble.

And of course, we'll begin to hear that the "credit crisis is now behind us."  The naïve on Wall Street will try to buy a select few financial and housing stocks on the idea.  And they'll try to convince retail buyers to do the same.

But just like every other "bailout" the crisis will get worse, and investors will lose millions. And taxpayers will be on the hook, again.

The current taxpayer cost for these two companies is up to $200 billion.  But consider this.  The surging numbers of foreclosures and delinquencies has skyrocketed to four million.  A big piece of that has yet to hit Fannie or Freddie books.  And delinquencies and foreclosures will jump even higher as unemployment rockets higher.

Oh, and let's not forget the Option ARM resets that'll impact banks, financials and housing between 2009 and 2012.

Fannie and Freddie shareholders are screwed, too.  The conservatorship allows shares of FNM and FRE to continue trading.  Unfortunately, the government has pulled the dividends and demanded that the companies shrink their portfolios.  Paulson said his plan places "common shareholders last in terms of claims on the assets of the enterprise."

Isn't that nice of him?

Better yet, the CEOs of these disasters walk away with millions.  Dan Mudd and Richard Syron were fired.  But both stand to walk with $23 million in severance. 

Mudd will be replaced by Herbert Allison, the former COO of Merrill Lynch, former McCain finance committee head.  Syron will be replaced by David Moffett, former CFO of US Bancorp, which got nailed by subprime, and former advisor to the Carlyle Group, a hedge fund with ties to the Bush family and Mid East oil.

This should end well.


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