Michael Shulman

Weekend at Bernanke's

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Freddie and Fannie will need massive re-capitalization. My guesstimate is $100 billion to $150 billion in the next three to 18 months. Their abilities to lend or securitize mortgages are now permanently impaired.

That's bad news for homeowners and wannabe homeowners (though it seems the only people who are buying houses now are my Shorts subscribers who are looking for a place to stash their profits): Mortgage interest rates will jump, there will be less (or maybe no) money available for marginal borrowers and the demand for homes will be permanently shrunk.

That's permanent as in "forever."

All of this is also bad news for the homebuilders and their cousins, which also have a place on our short-side list. But that's a "short" story for another day, though I will say home prices won't start climbing out of the hole again until 2012.

The latest massive bailout will lead to larger federal deficits, which will crowd out other stimulus programs the economy will need in 2009. This, in turn, will lead to overly rapid growth in the money supply and hit the dollar again, which will cause commodity prices to keep on growing.

THEY HEAR A CRUNCH; WE HEAR CASH REGISTERS RINGING

While some very convincing leading men dashed on to the screen the weekend of July 11 to save the day, I know there are still a fair number of damsels in distress tied to the tracks.