After our sixth straight week of down markets, our worst run since 2001, we’ve had the craziest weekend I can remember. It’s getting hard to keep track of the disasters.

Regional bank IndyMac fails and the FDIC takes over. This is the second-largest bank failure in our generation and larger than the combined assets all the small banks the FDIC has taken over in the past 15 years. IndyMac may be the first of many. The Feds have a list of 93 banks they’re watching and the really scary thing? IndyMac wasn’t even on the list. In fact, analysts say that up to 125 banks could fail over the next 12 to 18 months.

It’s becoming obvious that the US mortgage market is in some trouble. Freddie Mac and Fannie Mae are crumbling and the Fed voted unanimously Sunday to allow the firms to borrow directly from the central bank. Paulson also asked Congress for permission to buy unlimited stakes in the companies, setting them on a course to becoming federally owned.

Paulson says he doesn’t want Fannie/Freddie shareholders to profit, although it sounds like that may be a fairly new concept to our political community. From the New York Times expose:

In Washington, Fannie and Freddie’s sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years.

And as Fannie and Freddie grew, so did the fortunes of Wall Street, which reaped rich fees from issuing debt for the two companies, as well as the mortgage and housing industries, which banked billions of dollars as the housing market boomed.

Even after accounting scandals arose at the two companies a few years ago, attempts to push through stronger oversight were stymied because few politicians, particularly Democrats, wanted to be perceived as hindering the American dream of homeownership for the masses.

Lots of perks came with Fannie and Freddie’s charters and government backing: exemptions from state and federal taxes, relatively meager capital requirements, and an ability to borrow money at rock-bottom rates.

With the exception of Freddie/Fannie, the US government is not expected to throw any more lifelines to struggling companies:

“The credit crisis has obviously entered into a new phase - the government has one bailout left in them, and this is it,” said Jeffrey Gundlach, chief investment officer of TCW Group in Los Angeles, which invests $160 billion.

“One consequence of Freddie and Fannie is that other firms are allowed to go under,” he said. “If you couldn’t get your act together after four months of unprecedented financing terms, maybe you don’t deserve to be thrown yet another lifeline.”

This is bad news for some of our other friends. Lehman Brothers looks like it’s close to going the way of Bear Sterns, this time without the feds chipping in with a $30B bad debt guarantee. Shares are plunging, and rumors say Lehman is in talks with Barclays PLC for a buyout far below their current trading price… or possibly that they’ll have to sell their golden goose, Neuberger Berman, to remain solvent.

Like me, you’ve probably started to tune these things out, but don’t forget that:

• Oil is at a record high.
• The dollar is at a historic low.
• The Fed rate is already at 2%.
• 2008 foreclosures are estimated at 2.5 million.
• Inflation is rising.

On a more hopeful note, the SEC is probing allegations that speculators are running a reverse pump and dump scheme, planting false rumors about Bear, Lehman, and even Freddie/Fannie.  Federal regulators also point the finger at Senator Charles Schumer (D-NY) for raising concerns about IndyMac’s viability. Schumer responded by telling the OTS to stop pointing fingers and start doing their job.

Could it all be an illusion caused by rumors run amok? Have we hit a bottom? Lehman (ironically) is predicting record gains for the S&P 500. A Bloomberg survey of US strategists predicts an 18 percent rise by January, and the dollar rose for the first time in four days after Paulson announced the Freddie/Fannie funding plans.

Always darkest before the dawn? Or rapidly increasing downward spiral?

Here’s some Dance Party Friday to pick you back up: