NOTE: This is part of a continuing online novel. Here is the Table of Contents.

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The plot had been perfectly planned, perfectly executed.

They’d known they were going to lose Ohio by a quarter-million votes by 1 PM. The exit polls told them, the secretary of state told him personally. Thank God he’d taken that call on a disposable cell that couldn’t be traced.

But once he got the heads-up, it was simply a matter of adding a few votes in each of thousands of reliably Republican precincts, and keeping the polls in Hamilton County open as long as necessary. A few games with the electronic counts and voila – a 150,000 vote majority that won the election.

Mike DeWine would love the Supreme Court, and Ken Blackwell would slot right-in…perfect, a black Republican Senator to keep that Obama from doing anything. New Mexico had been just icing on the cake, and with a few games here and there in reliably red states we won a popular majority, too, he thought to himself. Kerry had nothing to complain about. It wasn’t a mess like Florida had been. It was, if anything, more brazen. And yet, somehow, more legitimate.

Yes, Karl Rove was a happy, happy man. Everything could be fixed.

These little economic problems could be spun. So what if inflation registered a full 4.3% for the single month of November? A one-time aberration. So what if the Arctic was melting faster than anyone previously predicted? Too late to do anything about it. So what if Hu Jintao was strutting a little bit. We’ve got everything we want, and the system in place for eternal power to the party. He’d have nothing on us, and neither would Putin. Three great empires, each alike in their system, but one with the military trump to be a lot more equal than the others.

Anyone got any complaints, he thought?

Rove picked up the phone, and listened calmly. “No, I think it’s a fine idea. Yes, you look Presidential, you face down the Chinese dragon, and you come home in time for Christmas. Bring the family. The girls will love it. Sure.”

To his surprise, the phone rang again. “Rove here,” he said cheerfully. “What do you mean you’ve got a problem with default rates?”

Rove made an ugly face, holding the phone away from his ear as he did so. It was that damned Franklin Raines, maybe the last Democrat left in the whole city.

Raines had taken charge of the Federal National Mortgage Association (FNMA), known to everyone as “Fannie Mae,” back in the 1999, leaving his post as Clinton’s chief of staff to do so. Since then he’d been a good boy. Did everything Rove told him to, buying any mortgage anyone cared to write, never mind the credit scores, bundling them into securities and selling them.

With a federal guarantee to back them, the mortgages were like printing money. And it had kept the real estate market going like a house-a-fire when everything else was tanking. Without Raines, and his counterpart at the Freddie Mac (FHLMC), Gene McQuaid, we might have had a four-year recession and real trouble. Besides, Fannie Mae was a private business – stuffing a CEO for his political beliefs might prove difficult. Fortunately the President appointed five directors at Freddie…

"Look, just do what you have to do,” Rove said impatiently.

“You don’t understand,” said Raines. But the connection had already clicked off.

Raines’ office didn’t look like a government man’s, and it wasn’t. Thanks to federal guarantees Fannie Mae was now one of the largest businesses in the country, 20th on the latest Fortune 500 with revenues of nearly $54 billion.

Usually it was easy work. Banks or their agents wrote mortgages on real estate, then sold them to Fannie Mae. Fannie Mae used government guarantees to raise the money that bought the loans. The money came from the private market, but the loans paid out like government bonds. In theory someone was still supposed to watch that the borrowers could pay the notes. But since it was the government’s guarantee that kicked in on a bond default, few did.

Raines had tried to. But his attempts to rein-in lending while keeping earnings stable meant playing a few games with the books. The result was a “scandal,” according to Treasury Secretary John Snow, which broke in early 2003 and sent his counterpart at Freddie out the door, replaced by a more “politically reliable” man in McQuaid. Raines had to struggle to hold his own job, and he’d learned his lesson. He kept a low profile in the city now, and had hardly shown his face near the 2004 campaign.

But he had done a good job, if he did say so himself. FNM stock was worth about $70/share. That was just about the price it was at when he took over five years ago, but given the growth of the company and the increasingly lax standards he had to accept to keep Rove happy, he couldn’t feel too bad about himself. Raines still had a lot of shares, and options besides...he mentally wrote their value down to zero.

But this…this was incredible. Usually default rates on FNMA loans averaged less than 1%. In bad times or good people kept the mortgage going, no matter what it took. And given the rising price of real estate (thanks again to those lax standards) there was every reason to believe this would continue. The problem would come if interest rates spiked, increasing the cost of money for everyone, and housing prices began falling, meaning there was less of a loss when defaults happened.

Raines looked at the report again. It was all here in full color, with graphs and charts a child could understand. FNMA kept up, not just with defaults, but late payments that might lead to defaults. Many borrowers had their payments automatically deducted from bank accounts, but the report showed some 1.35 million people had ended those agreements, just in the last week. Fewer than 3% of those borrowers had written checks. On top of that an additional 2.43 million more mortgages had unpaid balances from the first of the month. The next day, the 10th, would be the deadline, and while Raines could hope there would be a rush to the banks, he doubted it.

He looked at a second chart showing a profile of those who were defaulting. Most had bought homes just in the last year. They had overpaid. Some were scheduled to put as much as 50% of their monthly income into their mortgage payments. With average prices up 5% just in the last month, with gas prices up even more, and with prices at stores with Chinese-made goods like Wal-Mart up even more, it could mean only one thing.

A flood of mortgage defaults.

FNMA’s entire budget for handling its end of the government guarantees was less than the amount due for default. It was trivial next to this amount. If 2 million mortgages with an average principal of $300,000 suddenly went belly-up…Raines did the math and whistled. Six hundred billion dollars. That was nearly half the annual federal budget.

It was a hole big enough to sink the whole country.

Franklin Raines liked his job very much. It paid him $20 million per year – what was not to like. But he’d been raised to understand the value of a dollar. It wasn’t mentioned on his official biography but his father, Delno, had been a custodian in Seattle and his mother, Ida, a cleaning woman at Boeing. He and Wendy had been frugal, their sole extravagances being charities. They’d endowed a chair at his alma mater, Harvard, even built a rec center in Seattle. That opening had been the proudest day of his life.

Well, it looked like those days were all in the past now. And not just for him. He started writing a press release, dated the next day, leaving the final figures blank pending this report’s counterpart, delivered at the close of business tomorrow. And he mapped out the rest of that evening, Friday December 10, for explanations and interviews – CNBC, CNN, Fox, Bloomberg, the Journal, the Times, the Post…figure on an extra hour for the network newscasts.

Tomorrow was going to be a long, long day.