Readers suggested a topic on the GSEs. "Is everyone finally realizing this thing is too big to bail?"

Another, "Let's talk about what would happen if Freddie and Fannie went BK, their stock went to zero, and their bonds traded at about 40% of par value. Would other players be able to step in, raise capital, and start offering traditional 20% down mortgages to 700+ FICO borrowers? How long before that could happen, i.e., how long would it take for a stable mortgage market to rise out of the ashes?"

"What would it do to the house price decline- make it worse? have little impact? extend the length of the decline? Would the ultimate number of foreclosures be affected?"

One posted. "My personal view is that the politicians fall into three categories on the GSEs:"

"1. They don't understand that there's a real problem. 2. They understand a problem exists, but don't understand the magnitude. 3. They understand a problem exists, and are demagoging the public by pretending that the magnitude is manageable. (The kick-the-can-down-the-road strategy.)

One added, "I keep saying that this is too big. Now I'm hearing that Freddie and Fannie are going to bring down Western Civilization if they are allowed to fail, and they might."

"I'm really worried that the gov't can only help Fred and Fan so much. I'm pretty sure that it is not enough."

One asked, "Wait, didn't this happen because some people finally decided that Fannie and Freddie would need to raise a few tens of billions to become adequately capitalized?"

"FNM and FRE will be around, they may just get a cash infusion from some oil rich country or the US to help recapitalize-existing equity owners will be wiped out, or close to it."

"The ramifications of this are not insignificant. The cost of borrowing will go up for everyone because FNM and FRE will need to offer higher rates on their bonds to attract capital. Voila, home prices go down some more, further weakening FNM, FRE and all mortgage backed securities. Making borrowing rates go up even more."

Another suggests, "This is the beginning of the mortgage death spiral, IMO. If the govt attempts to bail the GSEs, it's possible we see **very high** inflation/hyperinflation as they try to cover all the losses. Maybe we get a new currency out of this?"

"If the govt does not bail the GSEs, we could see debt deflation that takes us back a couple of decades, financial markets could seize up, and we literally run out of money to conduct business in the U.S. GSE debt is held everywhere by almost everyone. Though most of us despise the idea of a bailout, the potential for GSE insolvency is probably the greatest financial event in modern times. We are definitely in a quandry."

"Anyone have a 'Plan C' that could save the financial system, yet avoid a hyperinflationary scenario at the same time?"

One said, "When the word 'conservatorship' starting bouncing around in some MSM articles, the marbles is my head went to warbling. Dang, I want my mommy!"

The Asbury Park Press. "Their struggles are reverberating at the Shore, where mortgage brokers say lenders have already tightened their standards so much that only well-paid residents with a clean credit record can obtain loans."

"'We could be the greatest thing since sliced bread, but if (Freddie Mac and Fannie Mae) disappear, we're dead in the water,' said Drew Anlas, senior VP of Select Mortgage Corp. in Brick."

"The problem? 'All loans in the marketplace are pressured by falling home prices,' said Keith Gumbinger, VP of a Pompton Plains company that tracks mortgage rates."

"A year ago, lenders might have required a borrower to show proof of income simply by supplying a pay stub and a bank statement. Today, they require at least a month's worth of pay stubs and tax returns from the past two years, mortgage brokers said."

"A buyer in Monmouth and Ocean counties wanting a $300,000 home probably needs an income of $72,000 a year, money for a down payment and little debt on his or her credit record, said Jim Brown, VP of Kastle Mortgage in Freehold."

"'It got very lenient,' Brown said. 'In the last 2 1/2 months, it's made up for all of that.'"

"Mortgage brokers shuddered at the mere idea of life without Freddie Mac and Fannie Mae. But keeping the companies viable won't come without a cost, said Gary Stroik, VP of a Little Silver investment firm."

"The companies' business model depends on their ability to raise capital cheaply from investors and lend it back out at a higher rate. If investors view the companies as riskier, they will ask for higher interest rates in return, Stroik said."

"Investors might shy away from anything related to mortgage companies, particularly with home prices falling and potential buyers struggling with rising energy prices and layoffs, he said."'

"'If you're a lender, how anxious are you to (provide) them a loan?' Stroik said."

"But mortgage brokers said the two companies can't be allowed to fail. 'If the government doesn't come in and bail them out, there will be such a limited supply of funding sources it will be impossible to get a loan,' Anlas said."

Time Magazine. "All debt issued by mortgage giants Fannie Mae and Freddie Mac comes with a prominent disclaimer: 'Not guaranteed by the United States.' But the business model of both companies, not to mention the continued functioning of the U.S. mortgage market, depends on nobody quite believing that disclaimer."

"Wrap your head around that contradiction, and you're well on your way to understanding the Fannie-Freddie drama currently gripping U.S. markets."

"The reason that the stock prices in both companies has plummeted, is that if the government had to step in to keep Fannie and Freddie functioning, shares in the companies would probably become worthless. On Friday morning, Treasury Secretary Hank Paulson issued a cryptic statement that seemed to say there wasn't any such bailout in the offing, and the stocks recovered slightly."

"Then word got out that Federal Reserve chairman Ben Bernanke had said the Fed would extend credit to Fannie and Freddie, and the stocks recovered more. But what happens next is anybody�s guess."

"Here's why it matters: Fannie and Freddie buy the bulk of the home loans made in this country.If the two companies were unable to keep buying home loans, the current housing crisis would get much, much worse. But if the federal government had to backstop them, the cost could run as high as $1.1 trillion."

"Bert Ely, a financial consultant and a long-time critic of Fannie and Freddie...thinks that Fannie's and Freddie's charmed existence as private enterprises with tacit government backing can't continue. 'What all this bailout talk does is blow away the notion that there's an 'implicit' guarantee. There is a guarantee, or there isn't.'"