James Politi, FT:

The government-backed mortgage companies that finance the bulk of new US home loans may not have enough capital to withstand the plunge in the country’s housing market, according to one of Washington’s most senior financial legislators.

In an interview with the Financial Times, Richard Shelby, the senior Republican on the Senate banking committee, said Fannie Mae and Freddie Mac were “thinly capitalised, highly leveraged and pose a systemic risk to taxpayers”.

It’s important to understand that part of the reason Fannie and Freddie are shaky is because bad loans have been moved onto their books in a calculated effort to prop up the financial institutions that issued the bad loans. By getting those mortgages onto government insurance, it eliminated default risk by those institutions. But the risk has been shifted onto our backs.

It’s also important to understand that the Fed has already burned half of its ammunition and that the credit crisis is not yet half done.

And, finally, it’s important to understand that Bush has announced he will veto any attempt to mitigate the crisis by helping borrowers, so the whole mess will blow up early in an Obama presidency, just as the deficit is exploding and inflation is raging out of control. Good luck, Barack. You’re going to need it.