Goldman Sachs Group, which avoided much of the subprime mortgage morass and posted record profits in 2007, is now looking for opportunities to scoop up securities backed by subprime loans, Dow Jones Newswires reports.

Bear Stearns Cos., which posted an $854 million fourth quarter loss thanks to $1.9 billion in mortgage write downs, now has $1 billion in short positions on subprime mortgage securities, Bloomberg says.

Who says bears don't travel in herds?

Here's Bloomberg quoting financial consultant Mark Adelson:

Adelson said he would pay more attention to Bear Stearns's strategy shift if it were coming from Berkshire Hathaway Inc. Chairman Warren Buffett.

"I think of Warren Buffett as a guy who's almost always right, and at this stage of the game I don't think of Bear that way," Adelson said.

Ouch.

OK, nobody comes out looking good here. You may have heard that U.S. Rep. Marcy Kaptur, a Democrat who has represented Ohio residents living in Toledo and other communities along Lake Erie since 1982, was very excited about her chance to grill Fed Chair Ben Bernanke about all the money he made as CEO of Goldman Sachs when Bernanke came to testify before the House Budget Committee Thursday.

Only problem there is that before he was named to the Fed's governing board in 2002 and sworn in as Fed Chairman in 2006, Bernanke was an economics professor at Princeton University and chairman of the school's economics department. Kaptur had Bernanke mixed up with Treasury Secretary Henry Paulson, who was Goldman Sachs' chairman and CEO before tapped for his current job in the summer of 2006.

What I like about this clip is that Kaptur is also incorrectly identified as "Senator Kaptur." So let's count the ways this is hilarious, depending on your world view:

1. We have somebody who's been in Congress going on 26 years who appears not to understand that the Federal Reserve Chairman and the Secretary of the Treasury are different people.

2. We have a major news media outlet where nobody seems to be aware that Marcy Kaptur has been in Congress for going on 26 years -- AS A MEMBER OF THE U.S. HOUSE OF REPRESENTATIVES. 

3. We have a guy who's been an academic most of his life in charge of U.S. monetary policy, and the former CEO of Goldman Sachs telling lenders they need to freeze the rates on all those crazy loans they made before he became Secretary of the Treasury.

And we wonder how we got into this mess? It's only funny for a second, though. As mortgage broker and syndicated columnist Lou Barnes observes today, "This week's political theater failed to reassure anybody." Barnes writes:

"Federal Reserve Chair Ben Bernanke testified to the House on Thursday; stocks sank from the moment he began, after he left, and until the end of the day. He was true to form: bland, passive and void of insightful conclusion. He may know exactly what he is doing, and it may be correct, but he drains confidence from a room like an open window in an igloo."

While TIME Magazine raised some eyebrows by naming Vladimir Putin its person of the year, the American Dialect Society is unlikely to generate much controversy by declaring "subprime" the word of the year for 2007. After all -- unlike the ADS' word of the year for 2006, Plutoed* -- subprime has become a household word. For those who still have homes. 

The subprime lending crisis prompted ADS -- "linguists, lexicographers, etymologists, grammarians, historians, researchers, writers, authors, editors, professors, university students, and independent scholars" who share an interest in "the study of the English language in North America, and of other languages, or dialects of other languages, influencing it or influenced by it" -- to create a new category for real estate words, reflecting "the preoccupation of the press and public for the past year with a deepening mortgage crisis."

ADS members were also taken with the terms exploding ARM, liar’s loan, NINJA loan (no income, no job or assets) and scratch and dent loan (see press release).

OK, so if Putin is the person of the year and subprime is the word of the year, maybe it's time for him to order the Russian oil companies he's reasserted control of to take all that money they're making selling oil to strapped U.S. consumers at $100 a barrel and put it into the secondary mortgage market.

*"To demote or devalue someone or something, as happened to the former planet Pluto when the General Assembly of the International Astronomical Union decided Pluto no longer met its definition of a planet ." 

Addressing local Rotary clubs today at a Holiday Inn in Fredericksburg, Va., President Bush said "the housing issue has changed" but "I just want to let you know we got a strategy."

As Wall Street investors today expressed their skepticism with the Federal Reserve's response to the credit crunch with another sell off of U.S. stocks, the president summed the whole mess up in terms we can all understand.

"We've been building a lot of homes, and all of a sudden fewer buyers are showing up. And it's going to take a while to work through the housing bubble," he said -- perhaps unwittingly giving bubble blogs everywhere the presidential seal of approval (remember when the term "housing bubble" was fightin' words?).

So what's the strategy -- pop the bubble? Some critics say the administration's approach to the housing downturn -- help some delinquent borrowers refinance out of ARM loans and into FHA backed, fixed-rate mortgages, while encouraging lenders to rewrite the terms of up to 1.2 million other loans -- is too hands off. Credit markets have broken down, making it too hard for prospective homebuyers and even corporations to get loans, they say, and we may headed for a recession.

The president's attempt to explain all the changes that have taken place in lending since he bought his first house in Midland, Texas, probably didn't do much to restore faith in the credit markets, either. Whoever put together the official White House transcript felt obligated to insert no less than three "sics" where the president had some language usage issues.

"I remember going down to the savings and loan and sitting down with the savings and loan officer and negotiating with the savings and loan officer. Well, this day and age you're going to use -- mortgages have been bundled, so the savings and loan doesn't own the mortgage anymore, or the bank doesn't loan [sic] the mortgage anymore, the local lending institute doesn't loan [sic] the mortgage anymore: it's owned by some international group, perhaps, or it's been bundled into an asset. And so there's hardly anybody to negotiate with. And so some lenders [sic] aren't sure where to turn. They have credit-worthiness, they may get pinched as their interest rates reset."

Could it be the president is just trying to make it easier for Jay Leno and Conan O'Brien when they go back to work without their writers? This might be an area -- presidents helping comedians develop jokes about the economy's dismal prospects -- originally pioneered by Jimmy Carter. Or was it FDR? Carter's undoubtedly been trying to get through to the White House to remind W. about that nasty bug that was going around in the '70s, stagflation.

In the spirit of yesterday's post summarizing FDIC Chair Sheila Bair's points on some common "misconceptions" about the HOPE NOW rate freeze plan will work, here's the Cliff notes on Treasury Secretary Henry Paulson's Q&A, which posted on the White House's Web site today.

We'll take considerably more liberties with questions and responses, since it's Friday, and because Paulson's responses just seem to beg for it in a way that Bair's didn't (translation for those not paying attention: he didn't really say some of these things).

Stephen, from Ann Arbor, Mich. writes:
I am a loan originator who has written a ton of ARMS. Now my phone is ringing off the hook. All those people want to know if they are going to have their rates frozen. How should I know?

Paulson: Just tell them it's not your problem anymore. Give them the HOPE NOW number -- no, not the number the President gave out yesterday. The number is 1-888-995-HOPE. Tell them they can't win if they don't call.

Adam, from Washington, DC writes:
Is the Treasury taking any measures to promote financial literacy in our schools? It seems like an important issue to address, since everybody who has an ARM loan that's facing a reset says their disclosures were provided in braille and they had no idea what they were getting into.

Paulson: I'll bet you're one of those people who thinks sex education classes prevent teenage pregnancy! Seriously though, Adam, I absolutely agree. Treasury has an office dedicated to financial education that works closely with schools around the nation to integrate financial education into the curriculum at all levels. As President Bush has said, unless we have a financially literate society, not enough people are going to be able realize the great promise of America: married, kids, two cars and a mortgage.

Alan, from Arizona writes:
Mr. Paulson Do you anticipate bank failures like England saw with Northern Rock?

Paulson -- You don't have any money at Countrywide Bank, do you Alan? Just kidding. The U.S. banking system is thoroughly regulated and well capitalized. We have a strong deposit insurance system that provides good coverage for the savings of hard-working Americans.

(For more, click 'Continue reading Paulson, abridged)

Randall, from Kearney, Neb. writes:
Why are we responsible for bailing out the ARM lenders, or if you insist, the borrowers that were fully informed of the consequences of an Adjustable Rate Mortgage? This is for the benefit of lenders, isn't it?

Paulson: Let me say first that you do realize global financial markets are on the verge of collapse? If we don't do something, pretty soon you won't even be able to go out for dinner with your wife on your credit card. There are 1.8 million owner-occupied subprime ARMs expected to reset in 2008 and 2009. The industry needs a systematic approach for working with struggling borrowers, in order to cope with increased volume over the next few years, and we applauded them yesterday for putting forward just such a streamlined approach.

Michele, from Maryland writes:
As someone who would probably benefit from President Bush's plan for subprime homeowners, will I need to do anything specific in order to qualify or be included in the plan?

Paulson: Just call the number provided by President Bush yesterday. Just kidding. CAll 1-888-995-HOPE.

Michele, from Maryland:
But how do I dial HOPE on my phone?

Paulson: There are little letters above the numbers on your phone. So H is 4, O is 6, P is 7, and E is 3. So dial 1-888-995-4673.

Michele, from Maryland:
So you could also call 1-888-995-GORF?

Paulson: Absolutely, Michele.

Sam, from Gaithersburg, Md. writes:
How will the administration's plan to fix interest rates for five years affect investors?

Paulson: Depending on the tranches they are invested in, they may head straight to their lawyers to file claims against participating HOPE NOW loan servicers. The plan announced yesterday does not change the fundamentals of the contract between servicers and investors, so if servicers start engaging in workouts that eliminate investors income streams, investors may have a leg to stand on in court.

Kim, from Minnesota writes:
Hi. My husband Chris and I are going through a foreclosure, which the sale is December 21, 2007 at the Sheriff's office where we live. I am wanting to know what kind of relief the government is going to give me when it comes time to file our taxes for 2007. It doesn't seem fair that any canceled debt will be treated as taxable income by the IRS.

Paulson: President Bush has called on Congress to temporarily reform this provision of the federal tax code. The House of Representatives has passed this provision, and I’m hopeful it will be passed by the Senate so the President can sign it into law before the end of the year. But if they don't, now you know who to blame. We all have to count our blessings, Kim. Just be glad you have some taxable income!

Michael, from Cleveland, OH writes:
How were you able to protect this plan from the inevitable lawsuits that could follow?

Paulson: Well Michael, as I told Sam, this is America, so we know there is always the risk of litigation. But the plan is completely voluntary, so servicers who are afraid of lawsuits don't have to engage in workouts. For those who want to chance it, we've given them something so their lawyers won't walk into court completely empty handed.

MarketWatch's Herb Greenberg has picked Sears Holdings Chairman Eddie Lampert as the winner of his "Worst CEO of the Year" award, even though Countrywide Financial Corp.'s Angelo Mozilo was "the most obvious choice" to many of his readers, he says.

Mozilo has only become the poster child for the mortgage crisis because Countrywide is so darn big, Greenberg says, suggesting CEOs at other lenders -- such as Kerry Killinger of Washington Mutual, Jimmy Cayne of Bear Stearns or NovaStar's Scott Hartman -- were equally worthy candidates. Citigroup's former CEO, Chuck Prince, was in the race until he was fired, Greenberg says.

Other than "ill-timed stock sales as his company was buying back stock" and "Countrywide's aggressive push into subprime loans at the wrong time" it's hard to single out Mozilo, Greenberg maintains.   

Countrywide, which undoubtedly had many a business writer busy this summer writing up a lengthy obituary in preperation for the company's demise, was also forgiven by investors today. As the Bush administration and loan servicers rolled out a plan to refinance or freeze rates on up to 1.2 million subprime ARM loans to avert foreclosures, Countrywide's stock shot up 16.1 percent on the day, to $12.10. That's 47 percent above its 52-week low of $8.21 on Nov. 20.

Heck, the stock's almost back to where it would be worth it for Bank of America to exercise its right to convert that $2 billion loan it made to Countrywide  in August into stock in the company for the agreed upon price of $18 a share. It was about $22 at the time, down from a (now) 52-week high of $45.26.

LAS VEGAS -- As seen at the NAR trade show ...

Imagine you are the past president of the National Association of Realtors, and you put your house on the market at the tail end of the housing boom for $1.45 million. More than two years later, you've knocked $165,000 off the asking price and it still hasn't sold. Would you be the least bit surprised if just about every blogger in the universe, from Direct Current to Paper Economy and Sellsius -- not to mention news outlets including the Washington Post, Business Week and MSNBC -- revels in your plight? (Check out the spat today between Sellsius and Zillow's David G over how many bedrooms the home really has). 

Watching the virtual tour of the home creates the illusion that the tinkly piano music accompanying the slide show is bouncing off the wooden floors in the home's empty rooms. If I were former NAR president Thomas M. Stevens -- a guy who seems reluctant to follow his own realtor's advice about how to price to sell  -- I'd at least think about staging this home.

Because while the motion-activated lighting and pet door in the garage ARE nice touches, nobody who's looked at the house in the last couple years has been THAT impressed with them. At least not at this price.

As the market continues to slow, builders continue to look for ways to generate more interest in their developments. Last night, I saw an ad (and yes, I was watching sports) for D.R. Horton's new Man Cave promotion. Granite counters might help sell homes, but some of us are looking for a space to nurture our I.T.A (Inner Tim Allen). The idea reminds me of The Pub in my local Nordstrom. Give a guy a place to eat fried foods, drink beer and watch sports, and you have him as a customer for life.