Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

Real Estate Isn't Dead, It's Just Different

Two important things happened last night that are deeply interconnected. One, during an interview on CNN, Treasury Secretary Henry Paulson suggested U.S. lawmakers had better pass his rescue plan for Fannie Mae (FNM) and Freddie Mac (FRE) or, he intimated, face embarrassing and ultimately confidence shattering personal probes. Two, although indicating he didn't want to "speculate about a second stimulus package," he speculated that a second stimulus package would be necessary since the first one had very clearly stimulated consumer spending. 

The reason these two things are deeply interconnected is very simple: Fannie Mae and Freddie Mac are going to be nationalized (and there is nothing anyone can do about it), but that act - as capitulatory as it may seem - is in and of itself not enough to resurrect the housing market or stave off the ongoing economic decline. Like a gnat hitting a buffalo, it's just not enough to move the thing. 

The emergence from a state of denial back into reality is a brittle, almost blinding experience. You keep smacking yourself in the face expecting to wake up from waking up. Instead, what happens is you get a headache and your face stings red and prickly.

The dream is that we shake this thing off, pump some money into Fannie and Freddie, then wait it out like grifters on the lam for things to calm down. Once the heat is off things can get back to normal. Except they can't. Look, the grift has been exposed. The con is up. 

Right now Freddie Mac is cooking up a way to raise $5.5 billion, probably by selling stock to the government. But record delinquencies are ongoing. The latest shell game being played by banks is to simply reclassify what constitutes a delinquent loan. That way the numbers look better and people don't notice as much how they remain inadequately capitalized for the real rate of defaults. Even so-called workout loans are defaulting at an unimaginable pace. 

Right now there are entire segments of the housing market that have no mortgage provider servicing them. Creditors are demanding larger down payments. There is simply less credit available. And also less demand. 

Viewed through the distorted lens of the first half of this decade, it is nearly impossible to imagine that this is the case. But the thing that must be grasped is that it's not that real estate isn't coming back... period... as some dangerous lunatics have exclaimed on TV and in print, it's that the weirdness of the real estate market of 2000-2005 isn't coming back. That's actually a good thing. But it's a different good thing. And some of us will need some time to adjust to this new reality.