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"Credit Crunch" Main Story

The "credit crunch" is the main story today and for the foreseeable future.

Fannie Mae and Freddie Mac are again dropping -- both down nearly 8% again. Freddie has already said it may need to raise more capital and may have to cut its dividend. Fannie hasn't said that, but it sure is trading that way.

These are critical companies; indeed they are the linchpins around any hope for an end to the credit crunch any time soon. And their weakness implies the market is not optimististic.

This bearishness is spreading to other stocks that are also critical players in any credit crunch endgame. Look at two other stocks whose fates are entwined with Fannie and Freddie: Countrywide and Washington Mutual. Both are at multiyear lows.

1) Countrywide, the nation's largest mortgage lender, have cut back lending and are now only selling loans that Fannie and Freddie can buy. But wait -- if they lack capital to buy Countrywide's loans, Countrywide could be in trouble.

Remember, Bank of America bought a huge position in Countrywide for $18 a share ($2 b); today the stock dropped below $9, a $1 b share loss for B of A.

2) Washington Mutual, the largest savings and loan, are also reducing their exposure to riskier loans and to nonconforming loans (those over $410,000, the limit of what Fannie and Freddie can buy). But it's the same problem -- with Fannie and Freddie now the biggest buyers of their products and problems with the end buyer of the loan means problems for the seller.

This unresolved credit crunch issues will be a major topic this week. Deutsche Bank noted that there are eight monetary policy speeches scheduled this week, and it's clear that financial market stability is the foremost issue on their minds.

The tone will be key here; will there be any hints of an additional rate cut at the next meeting in two weeks? Or will some speakers indicate the door is closing?

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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