The classic bubble indicator - "irrational exuberance." A twentysomething law student with no training in economics or real estate speculation just told me that the market always goes up. My peers are understandably naive; when the 1980s recession hit, naptime was part of our core curriculum. But we all watched the dot- com bubble burst. Before I could think of another question, she responded with her own question.

Fannie Mae and Freddie Mac are leveraged into the trillion-plus dollar range with complicated derivative securities. At the same time, mortgages comprise almost a quarter of bank holdings, and most insurers and pension funds are heavily invested in mortgage-backed securities. So, Fannie and Freddie are not only giant hedge funds, they are effectively the largest mortgage bankers, S&L's and portfolio managers in the world.

If Fannie and Freddie haven't done a good job ensuring creditworthiness, sniffing out fraudulent valuations, or matching risk, they could become insolvent (if they aren't already). With the amount of commingled mortgage investment in today's economy, we'd all share in the misery.