Back to the trenchant trenches. More bad housing news came out of California. The loan default rate spiked 80% in the first quarter, according to DataQuick. This is a precursor to a HUGE spike in foreclosures (defaults are the first step down this road) and a strong indicator that the real estate market in California still has another leg down. Even wealthy spots like Santa Clara and Contra Costa counties are showing mid-double digit increases in default notifications.

The New York Times reports that the White House has announced a plan which it will propose to Congress to bailout Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). So the executives at these companies will get to keep their millions in compensation and we will be on the hook for their mistakes. This is the what free markets mean for this White House -- private profits and socialized losses.

Here are three key terms of the deal:

• Buy stock and let the Treasury finance short-term needs. The U.S. will buy billions in Fannie and Freddie stock and lend to the companies to meet their short-term funding needs.
• Provide emergency Fed funds. The Fed will provide Fannie and Freddie emergency access to its discount window as it has done already for the investment banking industry. Under this deal, the Fed will open a lending facility for Fannie and Freddie which they will access by posting their own securities as collateral.
• Raise the national debt. The White House will also call on Congress to raise the national debt limit -- it has already risen from $5 trillion to $9.5 trillion during the current administration.

Just like on September 11, 2001, the beautiful weather in the Northeast is being paired today with a catastrophe. But today's catastrophe will result in people losing money, rather than their lives. Those who will lose money -- and already have lost plenty -- are the people who own shares of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) and the $5.2 trillion worth of mortgage-backed securities which these two guarantee.

But not everyone is losing money. The New York Times reports that one short-seller is profiting hugely from the rapid decline in these two stocks. In particular, Douglas Noland, a portfolio manager at the Prudent Bear Funds, was willing to go on the record. The Times reports that since the late 1990s, Noland's research has concluded that Freddie and Fannie would shudder when the US credit bubble eventually burst.

But there's no joy in Noland's heart even as his investors profit. According to The Times as he watched Fannie and Freddie fall 12.7% and 21%, respectively, on Thursday, Noland said "I am sickened by this. I had the same sick feeling after September 11. These companies are at the heart of the United States financial system of dollar based securities. Millions of people will suffer."