They also like us to forget the reality which you point out: “…required to show fair value balance sheets as part of their financial statements. Accompanying these balance sheets, they put out multiple pages explaining why the investor should pay no attention to them, that they don’t paint a true picture of Fannie and Freddie’s financial health. I’d venture to say that the two institutions would prefer investors not look at those balance sheets for another reason—they show both to be insolvent, or so close as to make the thought of investing in them the diciest of propositions.”

Pimco need to go under, along with Fannie and freddie!

http://www.bloomberg.com/apps/news?pid=munievents&sid=asReKtFUPtLo&refer=

The other creditors cannot remain indifferent to this filing. My guess is an involuntary bankruptcy, as we've predicted for some time. No other way to sort the creditors. But the kicker is that BAC still appears to have the $110bn asset bank unit escounced inside the Countrywide vehicle, so a filing means BAC loses the bank to an FDIC receivership. Or maybe that's why Ken Lewis has not moved the bank yet. More soon.

Murph and RCW–absolutely right, as Chris has pointed out very nicely at Institutional Risk Analytics.

MA–No issue whatsoever with your point about who’s footing the bill. Hyperinflationary spirals, sadly, and terrifyingly, do not seem outside the realm of possible outcomes here. Whether we get to that brutal end game or not, the question of where the pressures get vented is a really interesting and important one. The dollar would certainly seem to be candidate number one.

BR– A slight difference in the two driving experiences might include the fact that you were whistling down the road through some rather amazing little fogbanks. One does not leverage up and go long into the teeth of a bear market, at least if one does not want to end up wretching at the sight of one’s pnl, into the glovebox or elsewhere.

Ironically, Scott admitted that I drove no faster than he did on the way up, but one’s perspective changes as soon as you move to the Passenger seat.

Besides, this was an automatic, not a proper manual shift, and contained none of the tweaks that make the S or RS version so much fun to drive. And besides, I barely had the hammer down.

For the record, it is not at all true that Scott screams like a 10 year old girl. I estimate 12-14 years old is more accurate . . .

My only other comment regards the assumption that the American taxpayer will foot the bill for propping these securities up. The American taxpayer has no way (and no intention) of paying his own personal debt – much less that of the Federal Government. In the end (and no one knows when that will be), a hyperinflationary spiral might be the only way out.

It is interesting to note that most agency/govy spreads are somewhere around the center of their historic range. In 1998 ten year FNMA debentures traded at +120 to tens, the middle of last year spreads moved out to +66 and currently they trade roughly +65. At their 2006 narrows they were trading +30ish. Not a lot of opportunity there. MBS on the other hand are trading very close to their historic wides.

I was glad to see that you described your fishing as casting. If you had described it as catching, I would have had to call you on it. .

One point – WaMu debt holders should be wary of the warm embrace of BAC – as Countrywide debt-holders are nervously learning… !