Freddie Mac, the government-sponsored enterprise that along with Fannie Mae underpins the entire housing market, reported a smaller-than-expected $151 million loss in the first quarter—almost entirely because it changed its accounting—and said it would raise $5.5 billion in capital. Without the accounting changes, it would have lost about $2 billion. Wall Street said “hurrah!” sending shares up 9 percent, which The New York Times on C3 describes thus:

Much like its rival Fannie Mae, whose share price rose last week after it reported enormous losses, Freddie Mac’s performance on Wednesday reinforced the idea that investors have become convinced that Freddie and Fannie are too important for either to fail.

Put another way, even bad news can be good, as long as the federal government needs to bolster an ailing housing market.

Here’s the Quote of the Day:

“Both these companies are clearly going to be insolvent by the end of the year, but everyone knows that Congress will do anything to keep them afloat, because if Fannie and Freddie go under, the entire global financial system will melt down,” said Christopher Whalen, a founder of Institutional Risk Analytics, an independent research firm. “These companies’ earnings don’t matter. Their accounting hardly matters. People buy the stock because they believe the federal government will bail them both out if things get really bad.”

The Wall Street Journal notes up high in its C2 story that Freddie is actually worth less than zero. Its assets are listed at an estimated negative $5.2 billion, down from plus $12.6 billion three months earlier. And it’ll get worse: execs say housing hasn’t hit bottom yet and they expect to take up to $20 billion more in losses.

The Journal’s Heard on the Street, now in its new home at the back of the Money & Investing section, says investors are missing the story—that the company is “weakened,” its balance sheet “enervated,” and it will likely have to dilute its shareholders by issuing new shares. Its debt-to-capital ratio is an enormous fifty—three times that of Citigroup.

Countrywide rebuked, suit is on

Countrywide Financial was slapped down earlier this week by a federal judge who allowed a shareholder lawsuit to move forward against the firm’s executives and board members, the Times says on C1 and the Journal briefs on C2.

The ruling doesn’t bode well for the company—or its buyer, Bank of America—with the strong language coming from the bench, which used terms like “red flags,” “widespread deviations,” and said that the company “misled the public” about Countrywide’s loan practices and financial health.

The Times notes dryly that of the hundreds of mortgage companies that have gone under in the housing bust, “few” at the top have blamed themselves. That’s particularly glaring for Angelo “The Orange” Mozilo, the Countrywide CEO who the lawsuit accuses of insider trading.

The chief executive of Countrywide, Angelo R. Mozilo, has argued that his $474 million in stock sales during the three-year period complied with securities laws under a planned selling program. But he revised the program, known as a 10b5-1 plan, several times, each time increasing the shares to be sold.

As a result, the judge wrote: “Mozilo’s actions appear to defeat the very purpose of 10b5-1 plans,” created to allow corporate insiders to sell stock regularly and without direct involvement.

Mozilo might as well have relieved himself on a hornet’s nest: the stock sales picked up as the company’s shares slid from $45 last year to $4.85 yesterday. And the hornets aren’t unsympathetic Wall Street types. They’re public pension funds like the Arkansas Teacher Retirement System and the Fire & Police Pension Association of Colorado, The Associated Press notes.

Drowning in condos

In yet more housing news, the Chicago Tribune says a record 6,000 new condos will be dumped into the already saturated downtown Chicago (with sales off an incredible 83 percent in the first quarter) this year. It reports that developers may have to cancel projects for years because of the excess supply.

“It’s tremendously serious,” said Steven Hovany, president of Strategy Planning Associates Inc., a planning and real estate consulting firm. “What you are going to see are buildings going into foreclosure.”

The Times has a very interesting story about condo owners who got stuck with higher costs and rundown conditions because tenants in their buildings are dwindling due to foreclosures. It says the housing market may be worse than numbers show because condos, which account for one in eight homes, aren’t included in “many of the numbers.”

And here comes (more) trouble: 202,000 new condo units will come online this year, adding more than a third to the total added over the last five years, which was no slack time.

Is the Fed losing its independence?

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.