Over the past few years, the line between news and spin has grown thinner and thinner, to the point that it is no longer visible, even with the most advanced scientific instruments. In fact, according to most physicists, the line can only be detected by the infinitesimal gravitational pull that it seems to exert on surrounding particles, like faith in democracy, trust in authority figures, governmental accountability, and the inexplicable popularity of Perez Hilton. As a consequence, real-life causes and effects, decisionmakers and victims pale beside the far flashier waves that rustle through the covers of magazines and the ranks of the punditry. In the end, the past few presidents have demonstrated that truth is less important than "truthiness" and events are less important than titles.

In this spirit, the time has come to put a name on the economy's current crisis. As some talking heads have already noted, the Bush administration made a major mistake by allowing the term "bailout" to define the government's response to the economic meltdown. John McCain proposed the term "rescue," which sounds far more noble, while Treasury Secretary Henry Paulson suggested calling it the "Troubled Asset Relief Program," presumably hoping that a really boring title would make taxpayers forget about the issue. Using the same logic, petty thieves are now lobbying to have the term "pickpocketing" replaced with the monicker "involuntary, extralegal, above-market thigh massage."

With Freddie Mac (NYSE: FRE) shareholders all but wiped out by a government takeover resulting from mismanagement, sloppy practices, and overall incompetence, it's interesting to see what information is on the Facebook group for "Freddie Mac College Hires." Here's the description:

Countrywide Financial, which is now owned by Bank of America (NYSE: BAC), somehow managed to insinuate itself into nearly every housing related scandal of the current crisis.

Today's Wall Street Journal reports (subscription required) on some Countrywide loans made to senior executives at Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). In 2003, when Jamie Gorelick was vice chairman of Fannie, she received a $960,000 refinancing through Countrywide's now infamous Friends of Angelo program, which offered special deals to people CEO Angelo Mozilo wished to curry favor with. While he was COO of Fannie, Daniel Mudd received two $3 milion refinancings through Countrywide, but it's not known whether he received special treatment. Not surprisingly, everyone denies knowledge of having received special treatment.

As corruption scandals go, this one seems pretty weak. If a 1% interest rate reduction on a mortgage refinancing was enough to buy Countrywide influence, then these multi-million dollar executives were pretty cheap.

The real corruption in the mortgage industry was the disconnect between compensation and the long-term results of the loans made. Executives were corrupted by their own poorly-aligned pay packages, not floral arrangements and discounts on loans.

BusinessWeek offers an excellent critique of Treasury Secretary Henry Paulson's $700 billion plan to conduct a reverse auction of $13 trillion in financial toxic waste. But more importantly, it proposes a solution that could be just what we need to solve the problem -- recapitalizing the strongest banks and letting the weakest merge or fail. As I posted, such a strategy would not only solve the real problem -- a lack of capital -- but it would give taxpayers an equity stake in those banks. And that stake might be sold at a profit in a future economic recovery, helping us recoup our investment in this plan.

What exactly is the problem? Too much financial toxic waste and not enough capital to back it up. More specifically, financial institutions (FIs) holding the $13 trillion in mortgage-backed securities (MBS) and collateralized debt obligations (CDSs) only have about $340 billion in capital. So a 2.6% decline in the value of that toxic waste wipes out their capital. To estimate how much capital it would cost these FIs to write that down, I will assume that have already partially written it down -- to 60 cents on the dollar -- or $7.8 trillion. If its market value is even lower, say 20 cents, they would need to take a $3.1 trillion write-down to mark it to market -- leaving FIs with a capital deficit of $2.8 trillion ($3.1 trillion minus $340 billion).

Paulson's plan is deeply flawed since the reverse auctions -- which reward the FI willing to sell its toxic waste for the lowest price -- will either add misery to FIs or taxpayers. The FIs that sell toxic waste that's on their books at 60 cents on the dollar for, say, 20 cents on the dollar will be required to take a 40 cent loss. This will deplete their capital as I illustrated above and they will not be able to raise more.

The San Francisco Chronicle reports that not only is Wells Fargo & Co. (NYSE: WFC) surviving the chaos on Wall Street, but it just may be thriving. About the only reason that Wells Fargo has been in the news recently is as a potential buyer of Washington Mutual (NYSE: WM). In fact, as markets tumbled early in the week, Wells Fargo shares reached a new 52-week high of $44.69.

Industry observers say that Wells Fargo's stability is a consequence of its limited exposure to failing mortgages, particularly of the subprime variety. It hasn't escaped unscathed, however. It said it would take charges in the third quarter related to investments in Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), and Lehman Brothers, but much less than those taken by rivals Wachovia (NYSE: WB) and Washington Mutual.

Wells Fargo has been selectively acquiring assets, mostly in the western U.S., during the economic woes, and is expected to continue to do so. Chairman and former CEO, Richard Kovacevich, is rumored to me looking for one more deal before he retires later this year, according to Reuters. But both Wells Fargo and Washington Mutual have declined to comment on a possible deal. "There's going to be a lot of mergers and acquisitions for either good reasons or because people don't have choices," said Kovacevich, pointing out that Wells Fargo is not the only lender looking to buy.

Wells Fargo shares closed Friday at $39.80 and are up 31.8% year to date. Analysts surveyed by First Call recommend holding Wells Fargo.

Earnings reports continue to dribble in as the quarter winds down. Much of the attention this week will be on homebuilders KB Home (NYSE: KBH) and Lennar Corp. (NYSE: LEN) as investors look for any sign that the housing sector has bottomed (home sales numbers are also due out this week; see below). Analysts surveyed by Thomson Financial anticipate that both companies will report that they narrowed their losses in the most recent quarter.

KB Home's expected $1.25 per share loss, on revenue of $725.5 million, compares to the previous quarter loss of $3.30 and to a year-ago loss of $6.19. However, KB Home's losses in the past few quarters have been deeper than expected. The Los Angeles-based homebuilder's long-range earnings growth forecast is 10.5%, less than the S&P 500. Analysts continue to recommend holding KB Home, and have for at least 120 days. Shares, however, reached a new 52-week high of $31.69 on Friday, and they are up 10.5% year to date.

Lennar is expected to post a loss of 52 cents per share, on revenue of $1.1 billion. That compares to the previous quarter's per-share loss of 76 cents and to a year-ago loss of $3.25. While Lennar also has tended in the past few quarters to miss expectations, the Miami-based company managed a positive surprise in the first quarter of 2008. Lennar's long-range earnings growth forecast is 10.3%, about the same as KB Home's. Analysts also recommend holding Lennar. Friday, shares of Lennar also reached a 52-week high, $27.75, but they are down 6.4% year to date.

The U.S. Government's decision Friday to put in place a sweeping program to buy distressed/bad debt to stabilize the financial markets will likely represent the biggest intervention of the federal government into the private sector since The Great Depression of the 1930s. But not everyone is convinced the action is destined to add hundreds of billions to the taxpayer's bill.

U.S. Rep. Barney Frank, D-Massachusetts, is chairman of one committee that will review the U.S. Treasury's/U.S. Federal Reserve's plan, the House Financial Services Committee. He believes the plan will cost taxpayers "ultimately not a great deal. The Treasury will buy selectively," Bloomberg News reported Friday.

Frank added that the bad debt will cost "maybe double-figure billions over a few years. The government will sell the assets back," he said, Bloomberg News reported.

Frank's forecast realistic or optimistic?

Is U.S. Rep. Frank's cost estimate realistic or very optimistic? Economist David H. Wang told BloggingStocks Friday that depends on several factors.

"On the one hand, if we have a two-year period of economic stagnation, the government could end up with hundreds of billions of dollars of extremely-low-grade bonds, bonds that they may only be able to recoup the equivalent of 20 cents or 10 cents on the dollar," Wang said. "Some bonds would be written-off, others reconfigured and perhaps grouped with other investments, with the housing that backs them perhaps converted to other uses."

"On the other hand, if the government intervention broadens the conforming loan category of both Fannie Mae and Freddie Mac, as the legislation is expected to do, this will enable more 'somewhat-risky' mortgage bonds to be purchased, providing even more liquidity," Wang said. "And if the FHA [Federal Housing Administration] also receives more money to refinance mortgages at a lower rate, this will help check the high level of foreclosures."

"Under the latter scenario, net government outlays would be considerably less," Wang said. "Essentially, the issue is this: can the government maintain financial market liquidity, ease risky bonds out of the system, and reduce foreclosures with this plan? Not a simple task, but it is possible, over years."

What will be impact of the Fed's takeover of AIG on the dollar?

Check back in a few days or even a week, according to currency traders.

"There are too many unknown variables to say with any authority right now where the dollar will head from here," currency Trader Andrew Resnick said Wendesday at mid-day. "We'll need at least a few days, maybe a week or so to sort out who the winners are and who the losers will be." Resnick added that he is presently flat (obviously), with no open currency trading positions.

At mid-day the dollar was slightly lower, down about 0.5% against the euro, British pound, and yen. But in the broader context of things, "the dollar's move so far has been small, and statistically insignificant and inconclusive," Resnick said.

"Right now, we're just reworking our statistical models. The problem is, the variables keep changing, so it makes the previous projections less accurate," Resnick said.

At mid-day the dollar was at $1.4136 versus the euro, $1.7921 versus the British pound and at 104.63 versus Japan's yen.

Two scenarios for dollar

Confidence in the global economy fell in September, as concern mounted about the health of the U.S. economy and global financial system following the bankruptcy of Lehman Brothers and the near bankruptcy of AIG, which prompted a U.S. Federal Reserve intervention, a new survey indicated.

The Bloomberg Professional Global Confidence Index fell to 11.3 in September from 14.1 in August among U.S. respondents. The Western European index fell to 12.6 from 12.9. Readings below 50 indicate negative sentiment.

Economist Richard Felson, who did not participate in the Bloomberg survey of 3,000 Bloomberg Terminal users, told BloggingStocks Wednesday too many financial concerns and bankruptcies are occurring over a short period for business professionals to be positive.

"Countrywide, Bear Stearns, Indymac, Freddie, Fannie, Lehman, Merrill, and now AIG. Wow, that's an awful lot for any economic system to absorb in five years, let alone one year," Felson said. "Executives and other business professionals are justifiably concerned about credit access for business operations and about declining demand due to rising unemployment. The major U.S. economic metrics are not moving in a positive direction right now and the nation needs to correct that."

Last week's preview raised the question of whether consumers were turning to comfort foods in these uncertain times, specifically in terms of second quarter earnings of Campbell Soup (NYSE: CPB) and Krispy Kreme (NYSE: KKD). Campbell's strong earnings growth topped expectations, while Krispy Kreme narrowed its loss, though it fell short of estimates.

This coming week should bring reports from more food-related companies, from cereal maker General Mills and food packager CongAgra to grocery chain Kroger, to the parent companies of restaurants Cracker Barrel, Olive Garden, Red Lobster, Carl's Jr., and Hardees. Also look for reports from tech-related companies such as Oracle, Adobe, and Palm, as well as from financials Morgan Stanley and Goldman Sachs, and from economic bellwether FedEx.

Here's what analysts surveyed by Thomson Financial are expecting from some of the companies reporting earnings this week, as compared to their results from the same period of last year:

A number of people in the government are disturbed by the payments that the CEOs at Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) will enjoy. According to Reuters, "The Federal Housing Finance Agency (FHFA), which has taken over the two government-sponsored enterprises, said it could weigh a variety of factors, including whether the executives had committed fraud or insider abuse."

The issue of fraud at the two big mortgage companies has not been raised frequently, probably because it is not the issue. The firms were highly regulated and their auditors would probably have detected a systematic cooking of the books.

The trouble is much more basic. The huge problems at Fannie and Freddie were caused by stupidity and not systematic plans to fool shareholders. The chief executives at the two companies made decision similar to those made at Wall Street banks and brokerage firms. In a sentence, they gambled that the prices of housing in the U.S. would never fall.

Fannie and Freddie CEOs have employment contracts. They are not different from the ones that caused large pay-outs to the head of Merrill Lynch (NYSE: MER). It is part of doing business at huge companies.

Pay them and send them on their ways. Enough time has been wasted complaining about the disaster's past and not enough is being put toward fixing it.

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

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

Every investor would love to own a stock that doesn't have surprises, makes earnings grow every quarter and raises the dividend annually. At least sane investors do. Others go after hope and promises (no profits yet, but coming, we promise) and sleepless nights. This column isn't for them. It's for the ones looking for a stock that doesn't exist.

If there's ever been a final nail put in the coffin of the myth that there's a stock that couldn't possibly fail, it's Fannie Mae and Freddie Mac wielding the hammer. Every respected columnist and pundit wrote glowingly of these two a year ago. How well capitalized they were. How large they were. How they were the engine that made the mortgage market go. And above all else: they had the implied guarantee from the Federal Government behind them AND THAT THEY COULDN'T BE ALLOWED TO FAIL. There was no way they could fail. No way.

Now we know different. They haven't failed, but shareholders have a hard time finding solace in shares selling for 85 cents a share, ones they bought at $35 a share last year. Many people will say: serves them right. They took a risk, and it didn't work out. If these two giants had made money, shareholders would have made money as well. No question. In the stock market, you take a risk for the reward. Sometimes you take it for the loss.

Online brokerage firm E*Trade Financial Corporation (NASDAQ: ETFC) hasn't escaped the financial-sector pain this week. The shares plunged 4.7% on Wednesday after E*Trade warned that it expects three-year cumulative losses on its home-equity portfolio to exceed the top end of its previously forecast range of $1 billion to $1.5 billion. Additionally, the firm confessed that its total pretax realized loss on its preferred equity holdings in Fannie Mae and Freddie Mac amounted to $150 million, net of hedges, for the third quarter.

In response to the news, Fox-Pitt Kelton widened its third-quarter loss estimate for E*Trade. The analysts now expect a per-share loss of 42 cents rather than 27 cents. In comments accompanying the revised outlook, Fox-Pitt noted that ETFC's efforts to patch up its damaged balance sheet haven't been sufficient to eliminate doubts regarding its home-equity line of credit losses.

Yesterday's headlines probably came as an unpleasant surprise to the new crop of ETFC bulls. The International Securities Exchange (ISE) is experiencing a surge in call volume on the stock, which has now racked up a 10-day call/put ratio of 6.51 on the exchange. In other words, traders have purchased about 6.5 calls to open on ETFC for every 1 put during the past couple of weeks.

I'm normally skeptical of politicians wading into issues of executive compensation, but I think Barack Obama and Senators Charles Schumer and Jack Reed are right to ask for a government review of the departure packages for

Outgoing Freddie Mae (NYSE: FRE) CEO Richard Syron and Fannie Mae's (NYSE: FNM) Daniel Mudd could walk away with $14 million and $9.2 million respectively -- a far cry from the 9-digit packages that several top executives at the big banks left with, but still an awful lot of money for running companies into the ground to the point where a taxpayer funded bailout was necessary.

In a letter to Treasury Secretary Henry Paulson and Federal Housing Finance Agency director James Lockhart, Obama asked that (subscription required) the takeover deal "void any such inappropriate windfall payments to outgoing CEOs and senior management."

Is it political grandstanding? Of course, but it's also right on. Syron and Mudd should leave Freddie and Fannie without two nickels to rub together and if things are so dire that we have to fund a bailout, there shouldn't be enough left to pay outgoing CEOs multi-million dollar severance packages.

Democratic presidential candidate Barack Obama today sharply criticized the pay packages given to the departing chief executives of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

Obama told reporters that he wrote letters to Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart stating that "it would be unacceptable for executives of these institutions to earn a windfall at a time when U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources," according to CNBC.

He's absolutely right.

Yes, I realize that compared with the fallen CEOs of Wall Street, the pay packages are chump change. Fannie Chief Executive Daniel Mudd is 'only' getting around $9.3 million and his counterpart at Freddie Mac Richard Syron stands to receive $14.1 million. But just because Mudd and Syron are getting less than 10% of the $160 million parting gift awarded to Stan O'Neal for ruining Merrill Lynch & Co. (NYSE: MER) does not make them any less egregious.