UPDATE1: When the U.S. pledged its unwavering financial support to Fannie Mae and Freddie Mac on Christmas Eve 2009, the decision brought to light one simple fact: The losses Fannie and Freddie have sustained and will sustain in the near future, will likely cost us more than $400 million (the sum the two were previously promised to cover losses). One former general counsel at the Treasury Department seems to agree 100%:

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

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The Wall Street crisis encapsulates several issues occurring more or less at the same time. The crisis came to a head with the collapse of Bear Stearns and the failure of Lehman Brothers. The remaining few (but very large) investment firms were operating on the brink of failure, imposing substantial systemic risk to not only this country, but to others around the world.

As the government stepped in to take control of the problem, its influence grew and its rules began to tighten the belt of the industry. Amongst massive job cuts and mounting government control, a fair majority of Wall Street’s top talent was canvassing the job market — looking for something newer and far more entrepreneurial.

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The Obama administration has announced that executives at certain banks which have received TARP funds will have their pay capped:

The Obama administration outlined plans today to tighten restrictions on executive compensation for future recipients of federal aid under the government’s financial rescue program, but the large majority would be able to opt out of most of the limits.

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