A long, long time ago in what surely must have been an alternative universe, a government official told us that the mortgage crisis was self-contained. At the time it struck me as odd. It seemed to indicate a belief that the housing market was its own little corner of the economy, without much impact on the rest of our economy or our lives.

I haven't heard anyone use that phrase in awhile.

Now that we're facing a $700 billion bail out of the financial industry, here's the real problem with those earlier statements. First of all, they show a shocking lack of understanding of the importance of real estate in our economy. (By people who are paid a lot to know better!)

Second, the phrase, and the accompanying blather, was used to justify why there was no need to help out struggling home owners who were losing their homes to foreclosure.

And, so the hole got bigger, more people lost their homes. And, what do you know, it turns out that when enough people lose their homes, banks lose money! If enough homes get lost and enough banks get hurt, then there is reason for the government to step in and help.

I'm going to suggest that if the government had been willing to back stop struggling homeowners two years ago, we'd never been looking at this absurd $700 billion price tag now.

If I sound disgusted today, I am. The people who should have known better sat on their hands and watched this unfold. And, even now, as the bail out is being debated, there's a huge amount of push back about helping homeowners. Mind you this is the case even though I've heard several interviews with financial efforts admitting that foreclosures are really the root of the whole problem. So, we're going to put up $700 billion without addressing the root cause. Does this make sense to anyone?

Someone's going to have to help me make sense of this one! Feel free to share your wisdom!

I've waited a few days to talk about the Fannie Mae and Freddie Mac bailout. There are two reasons for that. First of all, I don't think we yet know what the effects are really going to be. Secondly, I'd posted when the legislation was passed in July that I was uncomfortable with the idea but didn't have a better one.

Clearly the markets told us yesterday that they think this is a swell idea. And, from their perspective you can certainly see why. Risks for investors have been reduced. Instead, risks for taxpayers have increased. (Hmmm, aren't investors also taxpayers?)

As a taxpayer, I remain skeptical about this use of my money.

As someone who makes a living in the real estate industry, it gladdened my heart to see mortgage interest rates drop a full half percent yesterday.

Long term, the model of Fannie Mae and Freddie Mac doesn't seem to have served us well. Whether some tinkering with the mechanisms can fix it or whether it needs to be scrapped completely will be debated over the next year.

The other debate will be over whether we, as a society, want to make home ownership a high priority. I suspect most are still in favor of this, even given our current difficulties. But I think a lively debate over how we allocate resources and what we believe in, is always a good thing!

The bigger they are the harder they fall.

That statement definitely applies to Fannie Mae and Freddie Mac.  Unless you've been under a rock the last week, you've heard about the trouble they're in.

Fannie and Freddie are a big part of why your local bank can offer mortgages. The bank loans you the money to buy your house. But it's going to be a long, long time before they get that back. And, it doesn't take too many mortgage loans before they're out of money to loans. So Fannie and Freddie buy mortgages from your bank. Your bank then has money to make another loan. This keeps a lot more money available for buying houses. It also keeps mortgage rates lower.

I don't think anyone feels good about the steps the government is taking to shore up these two behemoths. This is not how the free market is supposed to work.

But Fannie and Freddie have never really been pure capitalism at work. They are an odd blend of a corporation and the government entity.

Something had to be done now to keep the real estate and financial markets from further imploding. But I think there needs to be a short term strategy, meant to keep the markets calm and functioning and a longer term strategy that looks at the functions performed by these two entities and how those functions are best performed.

My belief is that if Freddie & Fannie weren't allowed to buy any more mortgages, eventually, another entity (and hopefully 3 or 4) would be created to fill that void. So, long term, how do you begin to ease Fannie & Freddie out of the business or at least into a smaller role.

The biggest problem here may be the shareholders of these two corporations. But, given what their stock prices are doing, it shouldn't be long before they are easy pickings for an enterprise that's truly commercial.

Now, does the political will and the creativity exist to envision something different than our current mess?