Are Fannie and Freddie the next to fall?

As the credit crisis continues, a couple of thoughts come to mind. Sobering thoughts.

Fannie Mae and Freddie Mac have all but been completely cleared to start taking on much larger mortgages. As high as $700,000 in some areas. FHA has been cleared to do the same. All of this is done under the guise of "helping" distressed home owners in default of their current mortgages.

Conventional wisdom (or the government) is telling us that these higher loan limits will enable those in default or close to default to refinance their loans into "safe" and lower fixed rate mortgages. Of course, this should help to stem the tide of foreclosure, shore up the beleaguered housing market and help to end the subprime crisis all the while keeping the U.S. from falling into a recession.

Now... wouldn't that be nice. Unfortunately... conventional wisdom does not apply here.

Fannie and Freddie have already posted MULTI-BILLION DOLLLAR LOSSES. All due to the fact that foreclosures on their books are at record levels. Now, let's add mortgages that are almost THREE TIMES THE SIZE of the median home price in the country. Mortgages that are either in default or about to go into default. Let's burden the GSE's with these toxic buyers. Oh yeah, and add on a heavy dose of depreciating assets.

What do YOU think will happen. It's clear to me, as it should be clear to everyone out there, that the government has absolutley NO idea what to do with this crisis. It's also very clear that Wall Street is not running for cover, but DIVING for it.

The thought that we are about to dump this problem on Fannie Mae and Freddie Mac should be a very sobering one.