Between the Lines: The $45 trillion gamble of Fannie and Freddie bailout

WELCOME to Fannie Mae's and Freddie Mac's party: the morning after the night before. The decision by the Bush administration, in its dying days, to nationalise the two ailing mortgage financiers has certainly raised the animal spirits of the world's equity markets. But the cheering could be short lived. The real question is: which dominoes will fall next?

The instant answer appears to be the medium-sized and regional banks in the US, which were heavy investors in the preferred stock of Fannie Mae and Freddie Mac. While the two mortgage financiers relied on bond sales for liquid funds (before that sour...