Fannie Mae could be "The Story" Today

The NY Times ran an article that begins with this.

FANNIE MAE, the nation's largest buyer of home mortgages, said on Wednesday that its primary regulator had discovered a host of new potential accounting violations at the company that had raised a fresh set of "safety and soundness concerns."

Fannie Mae also said that regulators had decided to give it a three-month extension, until the end of September, to carry out a plan to raise billions of dollars in capital and reduce its portfolio of mortgage securities.

The market could focus on the extension but that first paragraph is a bit of a disaster. It sets up the stock to break down from an already oversold condition. That situation could get ugly in a hurry and there is still massive exposure to that name in the bond market.

If FNM does get going on the downside keys to how it plays out will be whether the banks follow it down and whether treasuries can manage a pop on a flight to quality. If you get banks and bonds down the dollar will go too and that is when it is a real problem.