It appears our economy is in a bit of a spot right now. No kidding, right? We learned over the past few days that our U.S. banking system has effectively been nationalized. How did this happen? Hammerin' Hank, of course.

Paulson conspired worked with his Wall Street buddies, the Federal Reserve, and the FDIC before deciding how to use the first $250 billion that we recently invested into the HPHF.

What do you mean, 'nationalized'? The always insightful folks at the Wall Street Journal wrote an informative blog post describing what actually happened early this week. Basically, Hank bought a bunch of super senior preferred shares from many of the country's largest 'banks'. Goldman Sachs, a bank? Apparently it is becoming one. A few of these firms got $25 billion each, and a few got $10 billion. JP Morgan Chase, Wells Fargo, Citi group, Bank of America, you get the drift. These preferred shares mean that the HPHF owns up to 28% (in the case of Morgan Stanley) of the shareholder equity in each of these companies.

HPHF stands to make out pretty well. They will be paid 5% per year for the next five years on their investment in the form of quarterly dividends. The government gets its share before any other preferred or common shareholders do. After the initial five-year period, they will make 9%.

Hank himself terms this capital injection a 'temporary investment' in order to restore confidence in our banking system and encourage private equity to reinvest in these companies. 

What effect does this bank bailout have on real estate/the housing market? It is HPHF's hope that banks will now send that new money through the system by writing new loans and providing liquidity to the credit markets. Will more folks be able to qualify for a loan? Probably not, but here's hoping. Keep an eye on the LIBOR, which has dropped almost 30 basis points over the past few days, and is a solid indicator of where mortgage rates are going.