This past weekend saw the federal government bail out the mortgage agencies, Fannie Mae (FNM) and Freddie Mac (FRE). These two agencies combined either own or guarantee over $5 TRILLION worth of mortgages.

Why did the government step in? Because they had to! Over the past year, Fannie and Freddie have racked up a combined $14 billion in losses and write-downs. Both agencies, particularly Freddie Mac, were technically insolvent.

Foreign banks of all types, who own billions in Fannie Mae and Freddie Mac bonds, became aware of this. They became worried about getting paid back the value of those bonds when the bonds matured. These foreign banks told the US Treasury that unless something was done, they would immediately stop buying these bonds. That would have had devastating effects on the US mortgage markets.

So the Treasury acted. Both the common and preferred stocks of Fannie and Freddie are now nearly worthless. This