Over thirty years ago, when I taught at Dunwoodie, the Seminary of the Archdiocese of New York, there was a student who had a perpetually furrowed brow. His favorite expression was: "As if we didn't have enough trouble, now this!"

Well, the prospects facing us when moon day's markets open is enough to furrow the brow of the most intrepid.

Here's an excerpt from the editorial in Saturday's Wall Street Journal:

[S]peaking of ugly, yesterday's markets showed one more nasty side effect of the Fannie Mae panic: fear of rising inflation. Gold popped by $23 an ounce, and at $965 is back at the heights it reached during the March run on Bear Stearns. Oil also bounced up as the dollar fell, a sign that investors think the Fed will react to the Fannie fears by delaying any monetary tightening even longer than it already has.

If there's any other good news in all this, it is that the scandal of Fannie and Freddie is at last coming into public focus. The Washington political class has nurtured and subsidized these financial beasts for decades in return for their campaign cash and lobbying support. Wall Street and the homebuilders also cashed in on the subsidized business, and also paid back Congress in cash and carry.

The losers have been the taxpayers, who will now have to pay the price for this collusion. Maybe the press corps will even start reporting how this vast confidence game could happen.

And the New York Times (or at least its columnists) are, for a change, on the same page. In today's Times there's Gretchen Morgenson:

ITS dispiriting indeed to watch the United States financial system, supposedly the envy of the world, being taken to its knees. But thats the show were watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors.....

It wasnt as if this problem came out of left field. Fears that Fannie and Freddie were getting too big have been a recurring theme in recent years. And Congress has had ample opportunity to create a new regulator that would be vigilant about ensuring the safety and soundness of both companies.

But even after both companies were found to have accounted for their results improperly, Freddie Mac in 2003 and Fannie Mae in 2004, Congress failed to act. As a result, Fannie and Freddie were allowed to become high-growth companies and stock market darlings.

These companies would have been fine had they been forced to be the cyclical utilities they were intended to be, said Josh Rosner, an analyst at Graham-Fisher, an independent research firm in New York. They would be healthy and able to help the markets in this time of illiquidity.

Instead, they are in trouble and their woes are infecting the entire stock market....

The real outrage is that none of this had to happen, said William A. Fleckenstein, co-author of Greenspans Bubbles: The Age of Ignorance at the Federal Reserve and president of Fleckenstein Capital in Issaquah, Wash. We did not have to ruin the financial system and ruin the financial lives of a huge chunk of the middle class in the United States.

It is crystal clear that the Fed not only made mistakes, they had the pompoms out, cheering for deregulation, he adds. Until people recognize why we are in this mess, I dont see how we get out of this thing.

A week ago, Bridgewater Associates, a research firm, estimated that losses from the credit crisis were now mired in might amount to $1.6 trillion when all is said and done.

Well have to wait years to see if this is accurate. But whatever the number is, it will also represent, in stunning red ink, the cost to society of financiers who are shortsighted and greedy and regulators who dont regulate.

Of course, Fanny and Freddie meant gravy for our fearless political class, as another Times article makes clear:

The dominant role Fannie and Freddie play today is no accident. The companies, Wall Street firms, mortgage bankers, real estate agents and Washington lawmakers have built up an unusual and mutually beneficial co-dependency, helped along by robust lobbying efforts and campaign contributions.

In Washington, Fannie and Freddies sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years.

And as Fannie and Freddie grew, so did the fortunes of Wall Street, which reaped rich fees from issuing debt for the two companies, as well as the mortgage and housing industries, which banked billions of dollars as the housing market boomed.

Even after accounting scandals arose at the two companies a few years ago, attempts to push through stronger oversight were stymied because few politicians, particularly Democrats, wanted to be perceived as hindering the American dream of homeownership for the masses.

Lots of perks came with Fannie and Freddies charters and government backing: exemptions from state and federal taxes, relatively meager capital requirements, and an ability to borrow money at rock-bottom rates.

James A. Johnson, a longtime member of the Washington establishment who previously worked as a campaign adviser to former Vice President Walter F. Mondale, ran Fannie for most of the 1990s.

Jim Johnson was the architect of Fannies lobbying strategy. He was the muscle guy, if you will. The guy who would walk the halls of Congress, said Bert Ely, a banking consultant in Arlington, Va., and longtime critic of the companies. Freddie, Mr. Ely said, soon copied Fannies playbook.

Naturally, as happened at Dunwoodie after Compline, magnum silentium descends. The Times reports:

Mr. Johnson could not be reached for comment. Fannie declined to comment; Freddie did not respond to an interview request.