AND IT BEGINS ... FANNIE MAE LOSES $2.3 BILLION

Remember when Treasury Secretary Henry Paulson told Congress and the American people that granting the Bush administration the authority to inject billions of dollars into Fannie Mae and Freddie Mac was all about "restoring confidence" and that he "doesn't expect to have to use taxpayer funds"? Well, guess what? It looks like he's going to have to start using taxpayer funds pretty soon.

Fannie Mae just posted $2.3 billion in losses, for its 4th quarterly loss in a row. But don't worry, Fannie Mae's Chief Executive Daniel Mudd is on top of things. He said that their problems are caused by "volatility and disruptions in the capital markets" which have become "even more pronounced in July." Huh?

Why doesn't Mudd just come clean and say:

"We became stupid and greedy, and allowed our brokers and agents to sell us loans and contracts that were poorly vetted and driven by assumptions that we should have known were implausible ... Like the levees in New Orleans, who would have foreseen that not verifying income or assets was a bad thing?"

To deal with it's losses Fannie Mae said it "would slash its dividend more than 85 percent and take other steps to shore up its capital position." Translated, this means shareholders will still get some cash, and that Fannie Mae will start looking for lines of credit.

Hmmm, I wonder which (cough, cough ... taxpayer funded ... cough, cough) line of credit Fannie Mae will eventually have to dip into to ...

Stay tuned. There's more around the corner.

- Mark