I've been following Fannie closely over the last five years. I am glad that Eric Englund and I wrote this article when we did. We noted the insolvency of Fannie Mae; its inability to file a timely audited financial statement; the accounting scandals; the overwhelming number of "Buy" recommendations from brokerage houses; and its bizarre stock price appreciation.

In listening to the constant chatter about the Fannie-Freddie crisis, one thing struck me as funny -- Bloomberg analysts appeared to be perplexed that both companies are ranked Aaa by the credit-rating oligopoly, yet derivatives traders were trading both at levels that implied a credit rating at least five levels lower.

Credit ratings by the government-granted oligopolists are not the market; trading actions based on actual knowledge and/or informed interpretations of known events are the market. The act of trading credit-default swaps (tied to debt sold by Fannie and Freddie) does not hinge on implied promises on the part of the government. Sure, implied government backing has caused the security prices to be skewed for Fannie and Freddie. But what's happening here is that the market participants, in spite of an implicit government guarantee, are coming to their senses and realizing the insolvency of both Fannie and Freddie.

I also found it amusing to listen to the Big Government Pow-Wow on Bloomberg radio all day Thursday. Federal officials were scrambling to keep the real (bigger) issues under wraps while they were claiming that no real crisis was at hand. Journalists in the media consistently noted that the Feds were scrambling to put together a plan for containing the fallout from a possible financial implosion (a monetary 9/11, if you will), but, they always followed up with the propaganda put forth by the government's publicists, stating "......even though that (the failure of Fannie and Freddie) is highly unlikely to happen." All the fear, the massive coverage, the alarmist reporting, the in-depth analysis of all the what-ifs and what is - yet "it's really unlikely to happen."

Remember that it was only a year ago when Treasury Secretary Henry Paulson said that the subprime fallout was "contained," due to the real growth in the economy. Lastly, there's Jim Cramer on the Fed's role in containing the mess: "the Fed has got your back."