In previous blogs I have discussed provocative topics like the Trillion Dollar Meltdown written by author Ron Morris. I have talked about the upcoming book (due out in December) by futurist thinker Harry Dent who argues that the 2010 timeframe will be ugly for financial markets. As I wrote these blogs in the past 6 weeks I must admit I felt a tad uneasy advancing topics so unsettling.

Friends and family of the US Economy extend their gratitude to Hank Paulson and the surgical team at the Treasury Department Hospital.

Heads up !!

The biggest financial bailout in USA history is now underway. It has just been announced by Treasury Secretary Hank Paulson that in order to support the US housing market, there remains no choice but to nationalize mortgage finance firms Freddie Mac and Fannie Mae.

The US Treasury will immediately purchase $1 Billion in senior preferred stock in each of Freddie and Fannie. This preferred stock will have warrants attached and the shares will yield 10%. Assuming warrants are exercised over the near term, the Treasury could well end up pumping $100 billion into each entity to eventually own 80% of each. In addition, the Treasury will buy mortgage backed securities held by each entity starting right now.

The Treasury market managed to make it 2 positive weeks in a row even in the face of a stronger stock market.

Last week it was Fannie Mae and Freddie Mac’s turn to report losses that were out of this galaxy. Both of those stocks are now trading comfortably under $10 per share, but the Administration still maintains that there is no bailout necessary to save these mortgage behemoths. Credit spreads remain under pressure and liquidity is not improving. The Wall/Bay street analyst community is slow to react but the torrent of downgrades keep poring in as a result. On-going problems on this front are likely to support the bond market.

The Treasury conducted a couple of quarterly refunding auctions: 10 year notes on Wednesday and 30 year bonds on Thursday. The auctions were both very well received by both domestic and international investors. As a matter of fact, the 10 year Note was so aggressively bought that the bond market rallied strongly into the 30 year auction. The other event of some significance was the FOMC policy meeting last Tuesday. As expected, the Fed left its overnight rate unchanged at 2%. As per my previous comments, I am standing by my forecast that the Fed is months if not years away from changing the Fed Funds rate and when they do, they will be more likely lowering - not raising rates as the consensus would have you believe at this point. In addition to the Fed meeting, a couple of European Central Banks held policy meetings as well on Thursday. Both the ECB and the Bank of England acknowledged that the European economies have slowed considerably and they have no immediate plans to raise rates at this point. The US Dollar had its best week in years in reaction to the dovish chatter from Europe’s leading central bankers. Add to the pile the weak economic reports coming out of even countries that have resource based economies such as Canada and one gets a picture of a significant slowdown not only in the USA but also across the rest of the globe. As a result a number of bond markets are now discounting further Central Bank rate reductions. In Canada for instance, the Central Bank Rate is 3%, but the 2 Year Bond Yield last traded at 2.72%, indicating that in the bond trader’s opinion the Bank of Canada rate is artificially high and it should be lowered sooner than later in spite of the concerns expressed about inflationary pressures after the last couple of BOC meetings.

This is shaping up to be one of the worst weeks ever for the US taxpayer and the US Constitution. President Bush has now given Treasury Secretary Paulson the go-ahead to prop up the feeble Fannie and Freddie duo. Think about it…..with the stroke of a pen, Mr. Bush has agreed to print sickening sums of money that will undermine the stability of the US Dollar for years to come. Whatever happened to "we the people"? Now there are reports circulating that foreign investors are holding massive amounts of Freddie and Fannie shares. Hence the reasoning for this un-precedented bailout. These are the same foreign entities that have been financing the run-away trade deficits that America has been proudly sporting for the past decade or more. These are the same foreign investors that by purchasing America's Treasury Bonds have financed the war in Iraq and the invasion of Afghanistan.

America is broken. America has now been reduced to groveling at the feet of its masters – the foreign countries who finance its trade deficits and who hold its Fannie and Freddie shares and its Treasury Bonds. America is now gutting itself and falling on its sword in order to appease its masters. "We the people" are now "we the subservient".

Listen in to our discussion with TheMarketTraders.com founder Andy Millette, Malcolm Bucholtz of Brookhaven Advisors, and "John", a former banking regulator. This week's topics include the IndyMac Bank failure, the troubles with Fannie Mae and Freddie Mac, the currency market, and the latest in the commodities markets.