Black Box Report

In a year of economic uncertainty, the only given seems to be more bad news. But before anyone chalks the Fanny and Freddy story up as just more bad news, you’d better sit down. The two mortgage giants hold more than half of the nearly $10 trillion in U.S. debt. Let that sink in…$5 trillion.

If a movie producer is searching for a storyline for the next horror flick, they may want to consider crawling into the heads of Treasury Secretary Paulson and Fed Chairman Bernanke. For now, their saying all the right things, but the fear and building panic on Wall Street is almost palpable.

If either Freddy or Fannie, or god forbid both, fail we are talking havoc on the nation's financial system and the broader economy as well.

By law the mortgage giants are required to hold only a fraction of what's mandated for commercial banks as financial cushion against risk. Translation: no money under the mattress for a rainy day, and yes, it's pouring outside.

Freddy and Fannie were created because congress wanted to have a steady stream of money for home mortgages, and they have. In many ways they're more important than ever, since our government is depending on them to provide much-needed mortgage financing at a time when credit has gotten much harder to come by.

As we speak, every official is trying to talk investors off the ledge, but don't kid yourself, at the same time they're preparing for the worst. Would the government throw these giants a lifeline? They hate bailouts, but really, what’s their choice?

Nobody knows how this movie ends but consider what Bernanke himself had to say two years ago when talking about the massive holdings of Freddie and Fannie. The two, he said, "present a systematic risk" to our financial system.

Let’s just hope this is a scary flick with a happy ending.