That’s a little more than those who are drowning right now.

One in five U.S. mortgage-payers is underwater.  That’s over 8 million of us.  In times like this I cross myself and thank God I’m a renter.

Home values plunged a collective $2.4 trillion last year.

California, Texas, Nevada, Virginia and Florida form the primary wastelands.

However, according to First American — who tracks mortgages from California’s ground zero — should housing prices drop another 5%, another 2.2 million will get dragged under the swift current of decline.

That takes the tally up to 10.2 million — no surplus to be found in this “new” program. President Barack Obama proposed $275 billion plan makes use of refinancing or restructuring America’s home loans.

All you need: most recent tax return and two pay stubs…oh, and also an “affidavit of financial hardship.”

About $75 billion (good until 2012) would be used to rescue homeowners by paying lenders to alter troubled mortgages – inducing the lender to reduce borrowers interest rates as low as 2 percent.

The catch: you can only modify once.  And if you bought after Jan. 1, 2009, you’re outta luck.  Also, if you were mad enough to try for property worth over $729,750…call your relatives and hand the keys to the bank.  (If you’re lucky, they’ll want to make a reality TV show about your “hardship.” I hear one of the latest TV pilot shows is an ex-Wall Streeter who has to move back home with mom and dad.)

About 5 million folks fall under the aegis of Fannie or Freddie, and they’ve got until 2010 to rework these rotten loans to temporarily sweeter terms.

Now here’s what’s rotten in the state of Washington D.C. – this currently un-legislated and unfunded plan looks pretty similar to its circa 2005-2006 cousin…the brainchild of one Neel Kashkari, interim head of our Office of Financial Stability. (Yes, created by that first “bailout bill” – code name: Break the Glass.)

This fellow from Akron, Ohio, who advanced in life to Hank Paulson minion, took this hallowed fiscal post on Oct. 6, 2008.  Before that, he was a V.P. of Goldman Sachs (NYSE:GS) in San Francisco, where they nicknamed him “the Borg.”  Then, Kashkari approach Mr. Paulson for that solid government job in 2006 – great timing!  He worked shoulder to shoulder with Hank in bailing out Fannie (NYSE:FNM), Freddie (NYSE:FRE) and our perennial problem with the gambling addiction AIG.

In the years between making money for Goldman and overseeing money for Goldman-times-Politics-squared, Mr. Kashkari dabbled in the housing market.  Fat surprise that!

To get to any useful information on his 2006-2008 years in service of our government, one has to sift through all sorts of gush, childhood stories, college professor praise, and even “sexiest man alive” references.

Finally, after typing “Kashkari 2006” into my search engine, I found blogger Angry Bear, corroborating my recollection of forays I conducted just after Paulson tapped this “wet-behind-the-ears” pipsqueak for this interim post.

“HOPE NOW”  — The John the Forerunner of “Making Home Affordable”

Kashkari was the genius behind Bush’s HOPE NOW Alliance in 2007. (Again, it was already far too late to do much).  HOPE NOW looks like Obama’s plan of today, only it “encouraged” mortgage lenders to restructure subprime loans voluntarily. Hank announced it in Oct. 2008 – just after the takeover of Fannie and Freddie.

Like a McDonald’s sign, the HOPE NOW slogan is “Over 1 Million Helped” – when in fact, it just seems that they mailed letters about HOPE NOW to 1 million delinquent homeowners.

Ha!  How many subprime borrowers even live at the address?  I hear story after story of mortgage lenders who convinced folks to take funds for homes they couldn’t afford, then arranging a deal where they could buy a second home!

Ultimately, what HOPE NOW boils down to is a trademarked Hotline: 808-995-HOPE.  The number of calls fielded is what goes into the press release – 1.2 million in 2008 – not the number of workouts.

With today’s new plan, we’re stuck with dollar-for-dollar matching to encourage lenders to notch down their lending rates.  Guess that’s how the government can put its money where its mouth is.

We applaud Kashkari’s immense ability to lobby a mere six years’ work in finance to such a high position, and hope the Senate won’t be asked to confirm him anytime soon.

How About Holding Someone Accountable?

Now, a chum of mine, who worked at Fannie circa early 2000, since retired in disgust.  Why?  Because he saw how pervasive the federally-mandated home ownership tyranny had become.  It sickened him.  Physically… seeing the heads of Fannie conduct their pep-talks and flash pocket-of-the-government comments.  (I’ll warn ya, we’re getting him to write you a “chock-full-of-numbers” shot soon!)

Now, I’m all for buying a chunk of good land, planting a garden, and having a home of one’s own.  But I don’t have my own house yet.  Because the kind of house my income affords is in a neighborhood I can’t walk unmolested in.  Facts of life.  I swallowed them.

I use my credit card for what I can pay off at the end of the month.  And I resist the urge to “hope for better times” and shoulder a nice, hearty “American Dream” mortgage.  Now if only about 5 million or so (giving cushion for those surprised by lost jobs, etc.) had been as grown up as me.

I presume the same toxic shenanigans my friend describes at Fannie were happening over at Countrywide…and we know how that one blew!

So let’s play a little round of “Where Are They Now?” before Gary pours our parting shot.

See What Countrywide’s Iago Does Today: PennyMac

Fannie, Freddie, AIG, are just like blokes foisting a tin cup in our faces… And they’ve got just as many sob stories up their sleeves as you find in the savvy street bum – the one you know is faking it.

Here’s how it runs:

“Got here on the bus, see.  And I went to the hospital here (flashes ubiquitous pink or orange plastic bracelet).  I’m trying to get back to the hospital, and I need some money for the bus.

“(We wait another minute to point out that said hospital is only 10 blocks down the street)  Now is when he trots out the wife or child in the background, hanging in the shadows on the street corner.  “Me and insert name, we’ve just come all the way up from West Virginia…”)”

Here’s someone who’s not holding out the cup – because he’s working the system instead – and better than an welfare check recipient we know of. Stanford Kurland.  And he now stands to mint millions from this home mortgage mess.

Don’t know him? Mr. Kurland played Iago to Mr. Mozilo over at Countrywide Financial.  His bag of tricks?

With the more than $200 million he netted from selling his Countrywide stock, and hundreds of millions raised from private equity giants like Blackrock, he’s buying up the delinquent home mortgages that the government was forced to takeover from the likes of Fannie and Freddie – we’re talking for pennies on the dollar here.

So how’s that for private enterprise making lemonade from lemons? I see it as reprocessing lemonade to shape something that looks, tastes, and smells like a lemon – but ain’t.

He’s got this nice, glass-walled boardroom in L.A. for an outfit called PennyMac.

Yes, PennyMac.  The irony of the name makes my stomach lurch.

Can we say nothing about their abusive lending processes that gave some trash-compactor firm like PennyMac a raison d’être in the first place?  And I can’t help but want to stalk Mr. Kurland when I fly out to West next week and ask him about the proliferation of low-rate “teaser” loans at Countrywide starting back in 2003.

But he’ll blame Mozilo, of course, and say it all went to pot in 2006.  Yes, yes, businesses regulate themselves – when those disgusted by bad business practice defect to create new businesses.

How’s that for “growth?”

Of course our government will abet Stanford and friends’ modus operandi.  What choice does it have?

I leave you with this lovely quote from Depression-hardened investor Leon Levy:

“Business people who often sound like libertarians when markets are going up suddenly sound like socialists and beg for bailouts and protection from governments when the economy heads south.”

Source: Making Home Affordable: The Kickoff Begins

And what’s going to be accomplished? The short sellers will have to cover their positions on the short side, and they’ll do so by making sales on the other side of the market: the long side.

In fact, in a tanking market, the shorts do a great service. They’ve got to buy shares to close out their short positions…and they buy them exactly when the longs are ready to sell at any price. So, that sucking sound you hear, that’s liquidity being siphoned out of the market.

To see where were going next (Clue: It looks a lot like how China runs its banking system), let’s see where we’ve been since July 21.

What the Naked Shorts Revealed: America’s Most Toxic

Upon those plummeting financials were set a plague of speculations known as the naked shorts — or so we’re led to believe. We now know it was just a checkmate to shut down the shorting market altogether.

On July 21, the SEC first banned naked shorting until Aug. 12. (We’ll skip the details on naked shorting for the moment, but know that it is a way to make money when stocks fall.) But take a gander at the SEC’s experimental test population: 19 very suspicious financial stocks on the “do not naked short” list:

Now, why these 19 stocks? The fear was that these naked shorts were coming up short — that is, that they failed to secure the stocks they needed to deliver, known as “failures to deliver.” (When a short seller closes a position, he must buy back the stock he sold.)

Get this: Only Deutsche Bank had hit a high failure-to-deliver threshold. The others, well, they certainly made excellent short targets: overleveraged, undercapitalized, and often poorly managed. They were all in free fall.

In the case of Fannie (FNM) and Freddie (FRE), this ban was like a big “pause” button. So did our government attempt to stave off the bigger, more uncertain intervention: taking the GSE dirt onto America’s balance sheet.

Today, we know that Hail Mary play didn’t cut it. Fannie’s progression from just before the ban to the day of ban expiration went from $7 to $14 and back down to $8. Freddie: $5-$11-$5. Problem was, the SEC couldn’t change the facts.

Fannie and Freddie’s $100 billion capital hole was still a hole. These sick GSEs clung to Moody’s last “investment grade” rating before junk bond status.

No wonder when Fannie and Freddie turned to the Sage of Omaha for help, Warren Buffett took a pass. “The scale of help is such that I don’t think it can come from the private sector,” he told CNBC. Meanwhile, China and South Korea’s sovereign wealth just said no to Lehman Brothers shareholders — because nothing had changed on the balance sheet.

But how about those shorts? Arturo Bris, a professor at Lausanne, Switzerland’s, IMD Business School, kept tabs on shorts from January-July 15. The difference in shorting activity between the protected and nonbanned financial companies: a measly one percent. 12 percent of trades on the 19 companies were shorts — actually less than shorts of all U.S. financials, which clocked in at 13 percent of all trades. That’s a real crackdown! If those were all the shorts, how much havoc did the naked shorts really cause? There was something else at stake.

Semper Speculator: Remember the Short Seller

The hazard of the naked short wasn’t the issue after all, SEC chair Chris Cox admits in an op-ed to The Wall Street Journal on July 24: “[The ban] is intended as a preventative step to help restore market confidence at a time when that is sorely needed.”

So it was about hampering the free market. It wasn’t being caught naked. It was the fact that speculators were betting with such heavy confidence on the downfall of these former financial darlings. After that little test, Chris Cox promised that naked shorting on all shares could be banned in as little as two months — after public comment, of course.

On Thursday, Sept. 18, fast-acting Cox put a “100% zero tolerance” total naked short ban in effect. Broker-dealers had a three-day window in which to find those shares after they sell short or face charges of fraud. Your 30-day period for comment begins now, but that doesn’t matter.

The ban didn’t go far enough, see. Obviously, shorting was the sole threat to the “integrity” of this market. We need a real “time-out” for financials — or so said the government. Sens. Charles Schumer and Hilary Clinton hit up Chris Cox for a total ban. And they got it.

Now 799 financial stocks are protected from all short selling activities. So now our market’s “integrity” is inviolate and our confidence is boosted, right?