Smell that wound, and tell me if it smells like Limburger

So, apparently the American housing market is going to continue to get worse and worse, judging from the storm surrounding Fannie Mae in the last couple of days. Apparently, the government-run enterprise is exposed to the tune of 270 billion dollars to the subprime housing market. This makes the funny math that Fannie Mae tried to pull on its last accounting statement all the more interesting, as it may indicate that they are already experiencing beyond normal losses, and the CEO is predicting twice the norm for next year. If one believes in the predicative power of the marketplace, the fact that Fannie Mae lost about 10% of its stock value yesterday.

The interesting part of this story comes from the fact that the housing market is eager to to push off their subprime assets onto the big GSEs, such as Fannie Mae and Freddie Mac, which is why the market is so eager to see Fannie Mae' supervising agency, the OSHEO, to raise the housing lender's government-imposed financing caps. But, in light of the aforementioned outstanding exposure, combined with the fact that Fannie only has $40 billion in capital on hand, the bond issuance of the day before yesterday to the tune of $3 billion backed by home loans. looks like a desperate effort to keep the entire corporation from sinking into the red.

How important is Fannie Mae considering the unfolding crisis? I would say, "very."