I’m going to get into three things with you this morning.

First, I’d like to address the issues raised by many respected people, in regard to the suppression of private interests by an agency of government. To do this, I’m going to fill in some of the history of Fannie and Freddie.

Second, I’ll give more detail on the exact terms of the Treasury takeover of the GSEs, Fannie Mae and Freddie Mac? What’s going to be happening, and when does it expire?

Third, we’ll talk about what is happening in Congress, now that they’re back from summer vacation.

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There are two points I want to make to you this morning, as the impact of yesterday’s nationalization of the mortgage GSEs works its way through the system. Here’s more information.

First: while this is most definitely a fundamental change in the structure of the mortgage markets, it is not a change in our government’s existing policy of deep intervention in housing. The people who are expressing disgust at the largest nationalization in the history of the world are missing a few key points.

Second: early indications from overseas markets show that the move will be received very favorably. In fact, it could change the landscape in the financial markets. It’s far too early to say this out loud, so I’ll just whisper it very softly: there’s a possibility that we’re at the beginning of the end of the long credit crisis.

Keep reading, there’s more.

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At 11AM Eastern Time on Sunday, September 07, 2008, the Treasury Department released the text of a joint statement regarding the GSEs, Fannie Mae and Freddie Mac.

The statement contains remarks by Treasury Secretary Henry Paulson, and Director James Lockhart of the newly-chartered Federal Housing Finance Agency. (The FHFA now has regulatory oversight over the GSEs.)

As expected, the GSEs will enter government conservatorship (which is not the same as receivership). Several additional steps have been announced as well, and some new text regarding these additional actions was released as well.

You can read the Paulson/Lockhart statement
here. Read on for commentary on specific points in the statement. As soon as I can, I’ll give you commentary on the other parts of the release, relating to the specific actions being taken.

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About two weeks ago, I wrote in this space that some very large tectonic plates were starting to move far below sea level in the financial world. That was based on some unusual patterns I was seeing in the overnight repo and money markets.

I guessed (but had no information to confirm) that whatever was in the breeze had something to do with Fannie Mae and Freddie Mac, the pseudo-private corporations that together own or guarantee about half of all US mortgages, and today account for about 70% of newly-originated mortgages.

This weekend, there are many reports that Fannie and Freddie will have their managements and directors dismissed, their equity extinguished (or nearly so), and enter what’s called a government conservatorship.

In essence, the firms will be allowed to continue their current business operations, but under government control, and their shareholders will be wiped out.

The move is being spearheaded by Treasury Secretary Henry Paulson, and Ben Bernanke at the Fed has his hands all over it too. The structure and timing of this nearly-inevitable move have been the subject of intense speculation over the five weeks since Paulson asked Congress for, and received, unusually broad powers to take action with respect to Fannie and Freddie.

As we’ve come to expect, the action (which undoubtedly has been quietly but intensely debated all summer) should be complete by just before 7:00 PM tomorrow night, New York time. That’s when Asian markets open for trading on Monday morning, local time.

This is basically a good move. The US mortgage market has been de facto a creature of the federal government ever since Fannie Mae was created during the New Deal, and Freddie Mac in the late Sixties. The point of this is to get control over an extremely dangerous situation before it catches fire.

We’re seeing at least two critical things here that bear the hallmarks of Secretary Paulson (apart from the aggressiveness): First, the total willingness to destroy private shareholders in order to avoid moral hazard. We saw that in the Bear Stearns situation, and I applaud it.

Second, the willingness to use the government’s power to intervene forcefully in what theoretically are free markets.

There’s a very great deal more to say about this point. When we get closer to Sunday evening, I’ll post again and give you the deal details, and say more about the government’s new level of involvement in the financial system.

-Francis Cianfrocca

I know it’s McCain’s day and I don’t want to step on the parade, but you might have noticed that the US stock market dropped three percent yesterday. Bonds had a fairly significant rally, but not a barn-burner.

A pile of really bad economic data came out yesterday, and this morning everyone is anxiously awaiting the monthly labor data. The consensus estimate going in is that about 75,000 jobs were lost in August. If the number comes in much worse than that estimate, hold on to your hat. (Even though New York isn’t expecting a visit from Hurricane Hannah until Saturday.)

At the beginning of this week, I was beginning to scent some signs of a possible turnaround ahead in the financial markets. For one thing, the US dollar is continuing to strengthen rapidly (or more precisely, the euro is continuing to weaken), and commodity prices (including oil) continue to fall. But even the inward signs have been pointing to a mild return to stability in some sectors of the credit and housing markets. Yesterday may have changed that benign picture.

Update: The BLS August employment report is UGLY. See additional comments below the fold.

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Beyond any doubt, Sarah Palin is the most remarkable media phenomenon of the year, and perhaps of several years.

Last week, she was “Sarah Who?” This week, she and her baby will be on the cover of a Hollywood celebrity-dish rag, as if she were Britney Spears or Paris Hilton.

Completely lost in the volcanic paroxysm of mass-media anger, incredulity and blatant sexism are the plain facts that Sarah Palin is: A) a highly-accomplished woman; B) the successful Governor of an important state; C) a proven reformer with nerves of steel; D) more qualified by executive experience than either Barack Obama or Joe Biden; E) has inspired the love and admiration of half the people in this country; and F) is an entirely credible candidate for the Vice-Presidency of the United States.

So why on earth have all the mainstream media descended on Sarah Palin like a ton of bricks? Why are they so threatened by the Governor of Alaska?

I’m not so convinced that the big-time press are trying to smear Palin out of partisan animus. I don’t believe that mainstream journalists actually have partisan animus. In their own minds, they really are fair, objective, balanced, disinterested observers. It simply never occurs to them that it’s possible for normal, reasonable people to have different political biases than they do.

Here’s the real reason the mainstream press are treating Sarah Palin like Public Enemy Number One:

BECAUSE SHE DOESN’T OWE THEM ANYTHING.

Name a single other politician on the national scene who has achieved any kind of success without first going through innumerable appearances on Meet the Press and its siblings. Media people literally think they’re an essential part of the ruling class, a coeval branch of government.

When someone comes along and achieves importance outside of their power structure, the threat to them is immediate and visceral. More than anything else, they’re protective of the fundamental power they have, which is to shape the debate.

Sarah Palin has stirred up the media’s insular little world like very little else ever has, by threatening that world in the way that matters to it most of all.

The effect would have been no different if she had taken a baseball bat, and blasted every single news person in this blessed country in the head with it, from the top execs, through the on-air talent, right down to the stringers.

-Francis Cianfrocca

As of Tuesday morning, gold is trading about $797/ounce, down from a high of $1,037 several months ago. Oil traded below $105.50/barrel earlier today, and I stand by my often-made prediction that oil will fall below $100, and possibly well below $100. The US dollar has strengthened to less than $1.45 against the euro. Now if you’re one of the people who support a certain non-mainstream Presidential candidate, are constantly howling about the evils of fractional-reserve banking, and want nothing more than to legally engage in private transactions using gold, silver, euros, barter, wampum, or anything but US dollars, here’s my question for you: Are you wanting to slit your wrists right now? Or are you going to be lashing out like a caged animal?

Folks, I can’t believe the sexism that’s spewing out from the Democrats on the matter of Trig Palin. It’s not just the garbage about how a woman who is the mother of a special-needs child shouldn’t try to have a successful career at the same time. On top of that, the insane, offensive and obviously untrue story about Trig being the son of Governor Palin’s 17-year-old daughter Bristol is also refusing to die down.

I’ve already heard stories that the Obama campaign is very surreptitiously feeding all of this calumny. I would like all of you to help us to track down whether or not this is true.

The garbage started at DailyKos, naturally, where there have been at least 1800 comments so far. But it’s been picked up in press reports far and wide, possibly at the urging of Obama campaign staffers. I’d encourage all of you to dig into the biographies of the Kos and other commenters, to find their links to the Obama campaign, and post them here.

I know that all Republicans want to wage this campaign on substantive grounds. But if the Democrats are going to punch us below the belt with easily-refuted lies, then I have no problem at all with calling them on it every single day from now till the election.

Especially when they’re hypocritically violating every shred of the respect for women and women’s rights that we Republicans fully accepted long ago. The Democrats have now proven that they are the Party of Lies, not the Party of Respect for Women.

After all, Obama’s whole campaign started off as “new politics,” and now is all about “kicking the bums out.” Americans need to understand that the bums pursuing the old politics of sexism and personal destruction are all Democrats.

UPDATE: Reuters is reporting that a senior McCain campaign official has announced that Bristol Palin indeed is five months pregnant, and will marry the father of her child. Obviously this is the business of no one but the Palin family, but the McCain poople (who knew about the pregnancy) rightly felt it was important to refute the ridiculous claims being made about Trig Palin, who is Bristol’s brother, not her son.

To the Obama campaign: All right, people, bring it on. You tried and failed to say that Sarah Palin lied about her special-needs child. Now that the truth is out, would you like to try making the case that Sarah Palin is of a character not suited for high office because her daughter will have a child, and that her family will provide for the child in a loving and understanding way?

Or perhaps, to use the words of Barack Obama, you’d like us to believe that Bristol Palin is being punished?

-Francis Cianfrocca