Last week got off to a roller-coaster ride in the first two days of trading following the long holiday weekend. Monday experienced a strong flight-to-quality bid prompted in part by concerns regarding the GSEs.

Contributing to this was a report from Lehman Brothers discussing an amendment to FAS 140 that would require certain off-balance-sheet items to be consolidated onto the balance sheet. This could require Fannie Mae and Freddie Mac to raise substantial amounts of capital, said Lehman analysts, although they believe the GSEs would get some sort of exemption or modified capital requirements, as "severely undercapitalized GSEs could possibly topple the already fragile capital markets."

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