Last Friday the Fed announced a $200 billion dollar program for buying toxic assets from banks to help them stay afloat. Yesterday the New York Federal Reserve Bank started a new $500 billion dollar program for buying toxic securities from Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM)

Since Friday the yield on 30 year agency mortgage securities dropped from 208 basis points over Treasuries down to 190 basis points. This has had the effect of lowering mortgage rates. The rate on a 30 year fixed mortgage has dropped to 5.3% from 6% last November.

The Fed is using four firms to conduct these transactions. They are: BlackRock (NYSE: BLK), Goldman Sachs (NYSE: GS), Pimco and Wellington Management.

As was stated previously, the Fed has not disclosed the details of any of these repurchase programs. They are saying that they will be doing this "as the need arises."

A dramatic effect of this new Fed action is the sharp drop in US Treasuries, which today are down another 217 basis points on the 30 year March futures contract. Since last Wednesday the March 30 year bond futures contract has dropped from 141 down to 133 for a drop of about 800 basis points or $8,000.

I guess we can assume from all of this that Freddie Mac, Fannie Mae and the banks are in much deeper trouble than the Fed led us to believe last November. The Fed is not calling these bailouts any longer. They are just going ahead with these massive programs, programs that, by and large, investors and the public are not aware of.

What are your thoughts on these programs?

July 14 -- Dow 11,055 (down 45 points); trading range, 327 points

The third-largest bank failure in U.S. history made headlines after IndyMac Bancorp collapsed following a run on the bank.

An FDIC takeover of IndyMac attempted to keep operations as normal as possible, but doubts began to arise about other troubled regionals like Washington Mutual (later sold to JPMorgan Chase) and National City (now a part of PNC Financial after an October "take-under," where the company was purchased at a discount to its stock value).

But wait, there's more. After years of financial shenanigans and controversy, Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) were placed into conservatorship in a federal takeover of the government sponsored enterprises. This contributed to another slaughter in the financials, with 96% of the sector posting a loss for the session.

Oh, and if you wanted to drown your sorrows over an American-owned brew, scratch Budweiser off your list. Anheuser-Busch agreed to merge with Belgium's InBev for $70 a share, or $52 billion.

Greg Tucker is the executive editor of OptionsZone.com.

This shorting strategy defied all odds and pretty much defined the year for the stock market.

I don't know anyone who truly thought Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) would both be trading under a buck as 2008 came to close.

The idea of these once-in-a-class-by-themselves quasi-government entities that touch more than 85% of all mortgages in the United States going into full receivership by the government was considered foolish, almost ludicrous discussion that only invited serious sarcasm from professional Fannie and Freddie watchers.

The ultimate collapse of both stocks was devastating, not only to investors that continued to believe all the false headlines spewing from the front offices of FNM and FRE that said they were more than amply capitalized, but the whole financial sector as well.

The notion that Freddie and Fannie were too big to fail was a given, sucking in long-side investors at every 10-point interval on the way down to zero.

For most investors and traders, 2008 was a tough year. But while many people saw their portfolio take a merciless beating and watched their retirement vanish into thin air, there were a select few who made a killing.

In fact, if you had been on the right side of any of these bets, you could have banked enough dough to make up for your losses and then some.

Here are five trades everyone wishes they had made in 2008:

#1 Shorting 'Chindia' the day after New Year's: The Chindia experience peaked in Beijing with Michael Phelps, and the market knew it would a year and a day before the Closing Ceremonies.

#2 Getting long and staying long the 30-year Treasury bond: This strategy went from being a modestly successful trade through October to a hero-sized trade in the past 45 days.

#3 Shorting oil on the Fourth of July: The drop in oil prices has been nothing short of unbelievable. Those that had the fortitude to short crude in early July (and had the stones to stay with that trade) made a killing.

#4 Buying DryShips (DRYS) at the November low: Following its meteoric rise to $116, the stock careened all the way down to $3. But if you went long then, you saw the share price quadruple in less than a month.

#5 Shorting 'too big to fail' Fannie and Freddie: This shorting strategy defied all odds and pretty much defined the year for the stock market.

Freddie Mac (NYSE: FRE) said today that it received a notice from the New York Stock Exchange (NYSE), warning that the mortgage firm could be delisted due to its rock-bottom share price. FRE has been trading below $1 for more than 30 days now, and must notify the exchange by December 2 whether it intends to rectify the problem.

If Freddie does decide to meet the NYSE's listing requirements, it will have until mid-May to address the share-price issue; if not, its common stock and preferred stock are subject to suspension and delisting. In a statement, Freddie Mac said it's "currently working with its conservator, the Federal Housing Finance Agency, to explore options relating to this deficiency and has not yet determined its response."

Earlier this week, Freddie's sister Fannie Mae (NYSE: FNM) received an identical warning from the NYSE. The troubled siblings hit the headlines for somewhat more respectable reasons earlier this morning, when the pair announced they would temporarily halt foreclosures during the holiday season.

After opening broadly higher this morning, FRE has fallen to a 6% loss at 46 cents per share. Sibling Fannie is faring better today; that stock is up roughly 9% at last check -- though today's gain takes the per-share price only as high as 36 cents.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.

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.

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.

After last Thursday, when the Dow lost 345 points, I speculated that another bailout plan would emerge over the upcoming weekend. As I posted, there was no obvious reason why the market fell so much that day. But one of the possible clues of trouble was that Bill Gross, who manages the $800 billion Pacific Investment Management Co. (PIMCO), was making noises about how the government needed to spend $500 billion to save the housing market.

Coincidentally, Gross -- whose holdings include $500 billion in mortgage-backed securities (MBS) -- is rumored to have "helped" the Treasury with its bailout plan for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). And he has profited handsomely from it since he bought the MBS during the panic-- which have risen in value post-bailout.

The reason I felt that a bailout was coming is because this administration has a solid track record of responding to stock market plunges with weekend rescue plans. Evidently it is concerned that Asian markets -- more specifically China's which happens to own $340 billion worth of MBS -- need a weekend bailout plan so when their markets open on Monday they will have something to celebrate. The Big Picture has provided a helpful service by listing the six Sundays in the last 14 months that the government has announced a new bailout plan for the financial markets.

It looks like the CEOs pushed out at Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) will do very well. According to MarketWatch, "Daniel Mudd, the outgoing CEO of Fannie Mae, could receive more than $9 million in combined severance pay, retirement benefits and deferred compensation." The head of Freddie, Richard Syron, could do even better. The amounts may come down a little if performance clauses in the contracts cut bonus pay.

The complaining is misplaced. The departing CEOs at places like Merrill Lynch (NYSE:MER) and Citigroup (NYSE:C) did much better. Paying financial firm chief executives large sums is part of doing business. That issue is not confined to banks and brokerages. It extends to almost every other large industry.

The US business culture has become one of paying CEO hundreds of times more than entry level workers at the same companies. The entire systems would have to be altered for that to change. Activist investors have been working on the problem for years, and nothing has happened.

The excitement over the Fannie and Freddie CEO comp deals only serves to show that the company's boards believed that the executives would do a good job when they came into the firms and that, at the time, there was no reason to think that their stocks would trade for under $1.

No one puts together a pay package on the assumption that a corporation's stock will fall 99%. It is hard to find senior management who will take $1 as an exit package, even if things do go wrong..

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

Republican Vice Presidential candidate Sarah Palin told Colorado voters that Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) have "gotten too big and too expensive to the taxpayers."

Oops. The reality is that, as privately-held companies, Fannie and Freddie took no money from the federal government and it is only now that they will become a liability for taxpayers. The Huffington Post reports that "The major concern about Palin's position on the ticket is that she lacks the economic and foreign policy wherewithal to serve as vice president. This certainly doesn't help on that front. At the same time, the remark went almost entirely unnoticed over the weekend and discussions on the developments of the housing market can be difficult to process for even the most attuned voter."

When Palin made the remark, the audience cheered and McCain clapped -- meaning that neither the Republican Presidential candidate nor the Vice Presidential candidate, or even their supporters, understand the roles of Fannie and Freddie. More troubling, McCain told The Boston Globe last year that "The issue of economics is not something I've understood as well as I should," and, here's the real kicker, said that he would look for someone who was a true economics expert in his VP pick.

Apparently that didn't happen, and voters will have to decide whether they want to vote for a ticket that doesn't have two supply curves to rub together.

The big reason that Hank Paulson pushed a government takeover of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) is that he concluded, after Morgan Stanley (NYSE: MS) scrubbed their accounting, that the $84 billion in capital stated on their books was really worth $50 billion less. This made me wonder what would happen to the capital of other big banks if they took a similar 60% haircut.

The answer? Eight large U.S. investment banks would lose $372 billion worth of capital -- putting them all well below the minimum required capital ratios -- with an average ratio of equity to assets of 2.5% ($248 billion in capital to $9,788 billion worth of assets). My conclusion is that these banks lack capital to support their level of risk. So it should be no surprise they are reluctant to lend. The government and other sources of capital don't want to step in. And the challenge of recapitalizing them will be left for the next president.

Here are the four most vulnerable banks based on how low their ratio of equity to assets would be if they took a 60% capital haircut which marked their balance sheet more to market than to model:

• Morgan Stanley. Equity falls from $34 billion to $14 billion --> equity/assets from 3% to 1.3%
• Merrill Lynch (NYSE: MER). Equity falls from $35 billion to $14 billion --> equity/assets from 4% to 1.4%
• Lehman Brothers (NYSE: LEH). Equity falls from $26 billion to $10 billion --> equity/assets from 4% to 1.6%
• Goldman Sachs (NYSE: GS). Equity falls from $45 billion to $18 billion --> equity/assets from 4% to 1.7%