Banks across the world are still bedeviled by the reluctance to lend to each other as no-one still seems to know how much of the US's trillions of dollars of mortgage debt they have on their books (bought as part of securitisation packages).
Fannie (The Federal National Mortgage Association) and Freddie (the Federal Home Loan Mortgage Corporation) underwrite around 75% of this.
This share has risen from about 50% pre-credit crunch and therein lies the problem.
Other banks have pulled out of the market, leaving Fannie and Freddie with insufficient capital to support such massive lending.
For starters Paulson is putting in up to $100bn in each entity and also promising to buy new bonds issued by the two lenders.
Translated into mortgages, this just might be enough to get the US housing market moving again through new mortgages as well as providing cheaper remortgages for those facing repossession.
Paulson's long-term aim is to reduce the size of the two agencies and persuade other finance suppliers to take on the burden, a similar strategy to the UK government with the much smaller Northern Rock, although executed with rather more élan.
Meanwhile, back in the UK, Gordon Brown wants to pull off his own big deal on mortgages by underwriting £40bn worth but the Treasury, his old fiefdom, and the Bank of England oppose this, arguing that with Northern Rock they have quite enough exposure already.
It's really quite extraordinary how much damage what was until recently a small, regional mortgage bank has caused.
UK's quiet banking revolution
UK mortgage rates have slipped back to pre-credit crunch levels despite the Bank of England declining to cut interest rates.
The reason is good old competition with the banking sector undergoing a quiet revolution.
Whereas we used to have four big banks, HSBC, RBS (including NatWest), Barclays and Lloyds TSB, with the biggest mortgage bank HBOS knocking on the door, we now have five (with HBOS still knocking).
The fifth is now Spanish giant Santander which has revitalized Abbey (formerly Abbey National) and is in the process of adding Alliance and Leicester.
Santander is largely unaffected by the credit crunch (partly because the Spanish government wisely makes it difficult for Spanish banks to invest in some classes of toxic securities) and so was able, via Abbey, to make a land grab for mortgages in the first half of the year.
In a UK banking sector where customer inertia largely rules, such opportunities are few and far between and the other banks, including one-time mortgage market leader HBOS, are being forced to respond even though they still have balance sheet worries.
Now that the banks can no longer try to make profits from what they foolishly thought were one-way bets on US mortgage securitizations they have to make money by lending again.
We know the rates have fallen (anticipating an imminent cut in interest rates). What we don't know is how many mortgages are on offer and whether or not the deposit requirements for these will be relaxed.
But someone will take the lead and the others will follow. It might be the Nationwide which, after drawing in its horns in the first half of 2008 is now back in the market and about to snap up two smaller building societies, the Derbyshire and the Cheshire.
House prices might start to recover before the economists think.
Allen move adds to ITV bid speculation
ITV is due to drop out of the FTSE index of the leading 100 shares following the collapse in its share price from 130p to somewhere in the forties.
This makes it a snip for some lucky buyer but no-one has been keen to finance media deals for a couple of years now.
Even the deal to buy business publisher Informa is off again after the Providence private equity consortium reduced its bid by 11%.
The fire under ITV will be stoked by former CEO (and now Global Radio chairman) Charles Allen becoming a senior adviser to Goldman Sachs' private equity arm and taking a seat on the board of its main media investment, Big Brother producer Endemol.
Endemol has recently expressed an interest in ITV although, like most private equity-backed companies it already has high levels of debt.
Goldman, it will be recalled, was the main backer for former BBC director general Greg Dyke's failed bid for ITV a couple of years ago at around 130p.
Also this week we may hear the Competition Commission's adjudication on Sky's appeal against its earlier ruling that it had to divest all but 7.5% of its 17.9% holding in ITV.
Whatever happens there will surely be a large slug of shares on the market very soon which will help to flush out bid candidates.
We could finally be seeing the endgame for ITV as a public company.
European shares surge on US mortgage moves
Banks led European shares sharply up in early trading today (Monday) following big rises in Asian markets. Mortgage bank HBOS was up a whopping 24.5% first thing although vertigo kicked in and the shares lost half the gain.
Banks have been the biggest fallers in recent months as investors feared they would have to make still more mortgage-related write-offs.
But if the US nationalization (or 'conservator' as it's being quaintly called) of Fannie Mae and Freddie Mac succeeds in putting a floor under the mortgage market these fears will subside.
One day the banks may even be able to write some of these holdings back into their balance sheets at something like what they paid for them.
Of course we've seen the odd bounce like this even as US and European stock markets have slid relentlessly into 'bear' territory (down 20% from their peaks).
Each time the collapse has been prompted by financial sector fears.
Last week we had a nasty combination of financial heebie jeebies and energy companies and miners weakening on lower commodity prices.
Overnight US stock futures were all strongly up so that should sustain the rally into tomorrow. But recently it's been the end of the week when traders have become nervous.
Stephen Foster is a former news editor of ±±¾©Èü³µpk10, former editor of Marketing Week and Evening Standard ad columnist. He is a partner in Editorial Partnership and writes the blog and Politics of the Media for Brand Republic.
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