Fannie's Mudd Soothed Asian Investors as Bonds Rose

Here's the best part:

Paulson told Mudd he had a plan to restore confidence in Fannie and Freddie, the core of the Bush administration's efforts to revive the U.S. housing market. ``At that point, the proposal began to take form,'' Mudd, 49, said in an interview. ``We're trying to solve a crisis of confidence. Would this do it?''

"Crisis of confidence?" We started out with unrealistic confidence in Fannie and Freddie. The reason it ended is because long-term solvency problems suddenly came to the fore. Those problems are not yet solved, despite shuffling of government liabilities (implicit becomes explicit).

But the big problem here is now on the dollar and Treasuries. If I was a Big Asian Investor (tm) I would not be comforted.