Henry Paulson is maneuvering himself into the history books by forcing Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) into a spiral of doom from which they can't recover. He had plenty of help from the directors and executives who sit atop them. But it's becoming clear that since Saturday's Barron's article, laying out the path to failure, events are spiraling out of Fannie and Freddie's control.

The anonymous senior government source in the Barron's article said that unless Fannie and Freddie could raise at least $10 billion each, the government would bail them out while wiping out common shareholders and eliminating the preferred dividend. This would lead to a sell off of bad loans, a split into smaller pieces, and maybe selling those pieces back to the public. All these activities are a government gift to Wall Street, which will get to do all these deals.

Events are following this predicted pattern as Fannie and Freddie struggle to raise capital. The New York Times reports that investors are not enthusiastic about the most recent efforts to raise capital by Freddie Mac. It reports that on Tuesday, Freddie Mac raised $3 billion in five-year debt but the "1.13 percentage points [premium] over the rate the federal government pays for comparable borrowing" was more than double the "0.6 points" premium it paid earlier in the year.

Wall Street has a habit of riding its booms a bit too long. And that leads to collapse, layoffs, and hand wringing about the future. But it looks like Wall Street is already moving forward. And that means exporting its future by taking its finance franchise to cash rich countries and out of the canyons of Wall Street.

Wall Street's boom and bust cycles tend to eclipse a decade. In the 1980s, junk-bond fueled takeovers created massive amounts of wealth -- and also led to the collapse of junk-bond issuer Drexel Burnham. Wall Street licked its wounds for a few years and by the mid-1990s it had reinvented itself as the headquarters for Internet initial public offerings. That bubble burst in 2000. Then the Fed cut rates to 1% and Wall Street reemerged as a packager of mortgages -- along with servicing hedge funds and private equity moguls.

That all ended last August and the collapse of that bubble led to the demise of Bear Stearns and Countrywide and the loss of about $8 trillion worth of wealth. The New York Times reports that the latest collapse has cost 80,000 finance jobs as well. But Wall Street is already mapping out its future by following the money. And the Times pinpoints where Wall Street thinks that money resides -- based on the growth in the number of Wall Street people moving to various global money centers.

MAJOR PAPERS:

• Verizon Wireless, a joint venture of Vodafone Group Plc (NYSE: VOD) and Verizon Communications Inc (NYSE: VZ), is in talks to acquire Alltel Corp. in a deal valued at about $27B, the Wall Street Journal reported. If successful, the combined companies would create the largest cellphone company, and would be better positioned to compete against AT&T Inc (NYSE: T).
• Gregory B. Penner, the son-in-law of Wal-Mart Stores Inc (NYSE: WMT) chairman S. Robson Walton, is expected to join the company's board of directors, a move seen as the beginning of a leadership change at the company, according to the Wall Street Journal.
• The Financial Times reported that Singaporean sovereign wealth fund Temasek refused to provide funds to Bear Stearns shortly before Bear's sale to JPMorgan Chase & Co (NYSE: JPM). Temasek reportedly refused the request for practical and political reasons.
• Russia's Interior Ministry questioned the head of BP Plc's (NYSE: BP) Russian oil venture as part of a criminal investigation into possible large-scale tax evasion, the Financial Times reported.

MAJOR PAPERS:

• In part two of a series to help explain the reasons why The Bear Stearns Companies Inc (NYSE: BSC) collapsed, the Wall Street Journal said that executives believed they were about to turn a corner, but fear and rumors sent lenders, trading partners and clients running.
• The Wall Street Journal also reported that a host of factors could derail InBev NV from bidding for Anheuser-Busch Companies Inc (NYSE: BUD), including the cultural differences between the two, protests by politicians over foreign ownership of a U.S. company during an election year and possible unrest from Anheuser distributors and employees.
• Following the recent indictment of one of the bank's former senior executives, the Financial Times reported that UBS AG (NYSE: UBS) told members of its former private banking team not to travel to America. The restrictions suggest UBS is concerned investigations by the SEC may widen.

• The latest set of photos that supposedly show parts of Apple Inc's (NASDAQ: AAPL) 3G iPhone, released by Dutch website iPhoneclub.nl, look identical to the previously released pictures that were supposedly photos of the 3G iPhone, Engadget reported.

MAJOR PAPERS:

• Last December Chemtura Corporation (NYSE: CEM), a specialty chemicals company with a market cap of about $1.9B, said it might sell itself, and now The Blackstone Group LP (NYSE: BX) and Apollo Management are in talks to buy the company, the Wall Street Journal reported.
• In part one of a series to help explain the reasons why The Bear Stearns Companies (NYSE: BSC) collapsed, the Wall Street Journal said that the troubled firm was torn apart by executives who couldn't agree on what course to take, including raising capital and slicing mortgage and related bonds from its inventory. And each of about six attempts to raise capital fell part.

• The American investor and Berkshire Hathaway Inc (NYSE: BRK.A) chief Warren Buffett said the United States is already in a recession that is deeper and will last longer than the public expects, the Economic Times reported.
• According to the Telegraph, Barclays Plc (NYSE: BCS) is planning to sell Barclays Life Assurance Company, its life assurance arm, which has over GBP7B of funds under management. Sources believe potential bidders for the unit may include Pearl, Swiss Reinsurance Company (OTC: SWCEY), General Re, Canada Life and XL Re. Market commentators believe that on an embedded value basis, the unit is currently valued at around GBP1B.

MAJOR PAPERS:

• Harris Corporation (NYSE: HRS), concerned about its future growth, may see limited opportunity and may consider selling itself, the Wall Street Journal reported. If it does decide to sell, suitors could include Raytheon Company (NYSE: RTN), BAE Systems Plc (OTC: BAESY) and Northrop Grumman Corporation (NYSE: NOC).
• The Wall Street Journal reported that, in an attempt to toughen its regulation standards, SEC chairman Christopher Cox said earlier this week the agency would push Wall Street investment houses will have to reduce borrowing and rely less on short-term financing.
• As part of plans to reduce costs and restore profit growth, people close to the situation said that Citigroup Incorporated (NYSE: C) is likely to today identify up to $400B in non-core assets that could be sold. Additionally, the Financial Times reported that Citigroup CEO Vikram Pandit will confirm his pledge to cut the bank's cost base by about 20% at a meeting with analysts today. Sources familiar with the matter believe Pandit will dismiss calls for a break-up of the company.

• According to sources, the New York Post reported that the ax may fall as early as next week on some investment bankers at The Bear Stearns Companies Inc (NYSE: BSC).

BusinessWeek reports that the $29 billion "loan" that the Fed is making to finance JPMorgan Chase & Co. (NYSE: JPM)'s $1.2 billion acquisition of The Bear Stearns Companies (NYSE: BSC) is really an equity investment in $30 billion worth of mortgage-backed securities (MBSs).

If that investment goes sour, taxpayers will suffer. I think we deserve to know more of the details of those MBSs before the deal closes. For instance, what would a buyer be willing to pay for those MBSs in the open market? If the answer is 10 cents on the dollar, why should taxpayers be on the hook for the losses?

To do the deal, a Delaware-based limited liability company (LLC) will receive the $30 billion worth of Bear MBSs. The Fed will "lend" $29 billion to that company, which will pass all the money along to JPMorgan. JPMorgan will contribute a $1 billion loan to the LLC and BlackRock ­Financial Management will pay back the LLC's loans by gradually liquidating the assets. The Fed gets paid back fully before JPMorgan gets back anything on its loan. And if, after JPMorgan gets paid back, there's money left, the Fed gets it all.

New York City holds Bear Stearns (NYSE:BSC) stock in some of its pension funds, and along with almost all other investors in the brokerage, lost a lot of money.

According to Reuters, the NYSE controller said "I think a lot of people are going to be taking a look. ... Was there some deception in there or was this just a miscalculation?" A lot of people will ask the same question, which could lead to a lot of lawsuits.

Could a rash of lawsuits kill the Bear Stearns buyout by JP Morgan (NYSE:JPM)? Stranger things have happened.

At the heart of the argument is whether management knew that the company was falling apart when it said that it felt it would weather the storm of client withdrawals. The other possibility is that the catastrophe happened so fast that executives at Bear Stearns believed that they were OK one day and on the brink of disaster the next. Customers may have pulled money out that fast.

It will all come out in the depositions.

Douglas A. McIntyre is an editor at 247wallst.com.

Lots of big important news out lately, but I'm not doing anything differently. Nor will I ever. Because I've matured enough over the past decade to sit, wait and strike only when I see all the variables aligned. And that time still is not upon us. By buying The Bear Stearns Companies Inc. (NYSE: BSC), JPMorgan Chase & Co. (NYSE: JPM) may or may not be getting a great deal, but I'm not smart, well-informed or interested enough to really care because there are still too many conflicting variables. I only care for ideal trading opportunities, of which there are none (for my style of trading).

Since January, I've been calling for a 10%+ market drop and warning about a potential disaster not because I'm psychic, but thanks to archaic industry regulations limiting transparency, for industry outsiders, there's really no way how deeply troubled these financial firms are. Judging by Bear's buyout price of $2, even well-informed industry insiders are scared to pay too much to take on such risk.

So, just as when I featured them last week, perfectly downtrending stocks like Sprint Nextel Corporation (NYSE: S), Citigroup Inc. (NYSE: C) and Merrill Lynch & Co. Inc. (NYSE: MER) will probably continue downtrending, only more steeply this week around.

Lost in the flurry of activity over the weekend surrounding The Bear Stearns Companies (NYSE: BSC) is this morning's news that Carlyle Capital, the subsidiary of the Washington-based private equity king Carlyle Group, is 'winding up.' MarketWatch reports that Carlyle Capital, 15% of which is owned by Carlyle Group partners, has more liabilities than assets.

It is interesting that Carlyle can't utter the word 'bankrupt' -- instead preferring the innocuous-sounding term: 'winding up.' But Carlyle shareholders will be left with nothing. And, as I posted, since Carlyle borrowed $32 for every dollar of equity, or $16.6 billion, to buy mortgage-backed securities (MBS), the banks who take possession of those MBSs will probably be eager to dump them as fast as possible -- unless they think they will get a better deal by waiting.

But why wait? After all, the Fed lent $30 billion to JPMorgan Chase & Co. (NYSE: JPM) on a non-recourse basis to take over Bear Stearns's MBSs. This means that if Bear's MBSs go bad, the Fed will take the hit. Is there any active market at all right now for MBSs? If so, should the Fed just dump Bear's MBSs and take the hit now? Won't Carlyle Capital's banks do the same? And who will step in to buy all these MBSs? At what price?

Where does this all end?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

In the annals of Wall Street, it will simply be known as the $2 deal. That's the price tag on J.P. Morgan Chase & Co.'s (NYSE: JPM) purchase for Bear Stearns Cos. (NYSE: BSC), which has a stated book value of $84 per share.

Interestingly enough, $2 seems like a stellar deal for Bear. Keep in mind that – according to a piece in the Wall Street Journal [a paid publication] – the firm was negotiating a buyout deal while it was also preparing a bankruptcy filing. Yep, in a bankruptcy, the equity holders usually wind up with zero, especially in the case with an entity that has high leverage ratios. Oh, and the Fed and Treasury Secretary wanted a deal to get done so as to save the financial system.

No doubt, the blame-game is in full force. But, I have a partial theory to explain the meltdown. That is, a key driver in the growth of Bear has been the Information Revolution. That is, it has allowed for the structuring of extremely complex investment structures (it's breathtaking some of the things that can be done to a simple mortgage note).

The Fed has opened itself up to take some fairly weak securities from banks in exchange for funding to keep them liquid. According to Reuters: "The U.S. Federal Reserve is taking a risk by opening up its own balance sheet to the same poisonous securities that have strained banks to the limit."

The agency may feel it has little choice other than to swap good money for bad securities. The problem is that, if it does not, some large financial institutions could fail. The Fed can wait to see if the value of the securities increase over time as some subprime mortgages are paid off and locked up credit markets start to trade again. But, to think that the investments will ever be worth $1 for $1 that the Fed lends out is highly unlikely.

That means that the government has gone all the way to bailing out these companies and that tax-payers will foot the bill for tens of billions of dollars of "losses" at the Fed.

But, even if the tax-payer is asked whether he would like to pay a few more dollars to help big financial institutions stay in business or lose his job in a huge recession, he is likely to vote for paying the extra money.

Douglas A. McIntyre is an editor at 247wallst.com.

reports that JPMorgan Chase & Co. (NYSE: JPM) has closed a deal to acquire The Bear Stearns Companies (NYSE: BSC) for $2 a share -- 99% below its all-time high of $167 a share in February. On the face of it, this sounds like a low price -- $236 million. But the Fed is kicking in $30 billion to fund Bear's "less liquid assets." Taking into account the $1 billion value of its headquarters, this deal values Bear at negative $764 million.

And then there's the question of risk. According to JPMorgan, "Bear Stearns' clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns' counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner." I guess this means that JPMorgan's biggest "price" is the counterparty risk risk it's assuming.

I guess that explains why JPMorgan is paying $1.76 billion less than the $2 billion figure being floated earlier this evening. Nevertheless, I think the markets will like the fact that JPMorgan and the Fed have decided not to let Bear's blood drift around in those shark invested waters for more than a few days.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.