Fannie Mae (FNM) and Freddie Mac (FRE) opened well up today. FRE hit a high of $9.80 up from a $7.75 close on Friday. Now, it is only up a little over 5%. The news of the government aid for the two mortgage companies did not do too much to calm investors.

Lehman (LEH) opened 11% above its Friday close. It is now down 1.5%. Wachovia (WB) is trading off 6% and Washington Mutual is falling 12%.

Before the open, Wall St. assumed that the government support would drive financial stock prices higher and keep them there.

The walk to the end of the rainbow was interrupted by two things. The first is that it has begun to dawn on investors that all the money coming in to support these ailing banks and brokerage houses will not be free. If the federal government puts $5 billion into Freddie Mac, the dilution could easily cut the company’s share price in half. If Wachovia has to raise outside money, the effect will be similar.

The larger problems is that the market cannot avoid looking the fact that the credit crisis is systemic. Shoring up trouble in one spot does not solve the problems in another. Even if Fannie Mae and Freddie Mac make it out of the crisis with their skins intact, firms like Lehman and Washington Mutual may not. Even overseas, banks including UBS are in substantial danger of being dismantled or partially taken over by the government.

It may be simplistic, but financial shares are not going to trade up consistently until housing prices begin to rise and oil prices begin to fall. These two factors block the way to the overall health of the global credit system the way that the Colossus of Rhodes blocked the entrance to that ancient island.

Financial stocks can’t be rescued one at a time. The tide has gone out too far.

Douglas A. McIntyre

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