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Today U.S. stocks declined the most in more than a week, led by banking and real estate shares, as growing speculation the government will bail out Fannie Mae and Freddie Mac rattled the mortgage market.

As has been happening in Wall Street for the better part of year, traders are overreacting to speculative news regarding financial institutions.  Rumors destroyed Bear Stearns, IndyMac and now it looks like they are adversely affecting the world's largest residential lending bodies.  Both Fannie Mae and Freddie Mac are government backed agencies, and account for over $1 trillion of residential loans, so no, the federal government would never let those institutions fail.  They have suffered because of poor performing loans and no one should be taken by surprise with this information.  I can't but feel that there is some market manipulation occurring here that is enriching those parties that know how to game the system, i.e., short trading. 

Residential finance and real estate will recover.  Wall Street and the government seem unprepared in dealing with our current economic state.