YOU KNOW THAT things have gotten about as bad as they can get when even the best news in the world is greeted as a sign of disaster.

On Tuesday, the price of crude oil dropped $9 per barrel following a press conference by President Bush, in which he urged drilling in the U.S. outer continental shelf. What could be better?

In today's super-pessimistic environment, the real question is: What could be worse? With the lower oil price a much-needed gift to American consumers, and the president's initiative a long-awaited move toward U.S. energy independence, guess what CNBC reported? That the sudden drop in oil was the result of a big bank going belly-up and having to liquidate its speculative long position!

Well, I hate to tell all those pessimists out there, but that move in the oil price and further down-moves the rest of this week is good news, not bad news. Even at somewhat lower prices, oil is still expensive, and it's going to present some economic difficulties. But wouldn't you rather see oil at $130 rather than $150? Can we just stop for one moment and say "thank you"?

And maybe, just maybe, there's more downside for oil. High prices seem to have opened up the political process for more domestic production, and that would increase global supply over the long term. And this week two important diplomatic initiatives between the U.S. and Iran were announced, and that lessens the possibility that oil supplies could be disrupted by hostilities in the Middle East. Those are solid reasons for the oil price to pull back.

As I wrote here three weeks ago there was no real reason for oil to have shot so high in the first place. So as far as I'm concerned, the oil price is due for a huge drop for no reason at all. But we have two reasons. Isn't that good news?

And how about the way Treasury's rescue contingency plan for distressed mortgage giants Fannie Mae and Freddie Mac was greeted by the market? It should've been good news that the government, which has always sponsored Fannie and Freddie (that's why they are called "government sponsored enterprises"), was going to do the right and proper thing and stand behind them. But noooo.

Instead, all that anyone seemed to focus on was how cataclysmic it was that Fannie and Freddie had to be rescued in the first place, and how terribly expensive it was going to be for the government to do it. At first, shares of Fannie and Freddie fell further much further after the rescue was announced!

And how many times this week have I heard some seemingly knowledgeable "expert" claim that this is a "$5 trillion bailout" that will "double the U.S. national debt"?

Let's get real. No one is talking about the Treasury buying out the $5 trillion of outstanding mortgage pass-through securities issued by Freddie and Fannie. And even if the government did that, it wouldn't increase the national debt by that amount at least not in any conventional sense. Those securities aren't Treasury bonds representing debt of the U.S. government. They are mortgage bonds more than fully collateralized by prime residential real estate.

But that's not what the rescue is about anyway. The rescue is just a contingency plan, under which the Treasury would loan Fannie and Freddie some money if I repeat, if they need it, and would buy equity in the two firms if I repeat, if they need it.

Will they need it? I can't promise they won't. But they don't need it now. The two firms, between them, have about $80 billion in capital. That's a lot to help them absorb losses that may come from their investments in, and guarantees of, subprime and Alt-A mortgages or losses from greater than expected defaults in the prime mortgages they guarantee.

How big could those losses be? I've done the math. Making the very worst possible assumptions about default rates, the most I can get the losses to be is about $200 billion. At first blush that's a staggeringly large number, and more than twice Fannie and Freddie's capital. And I'm not saying these two firms haven't gotten themselves into some very deep doo-doo. But wait a moment before you jump off the nearest ledge.

I'm making very pessimistic assumptions about default rates way higher than actual default rates today, which are already way higher than the historical norm. I'm assuming that Freddie and Fannie won't recover a single penny from repossessing the homes they foreclose on. And perhaps most important of all, I'm assuming that all the losses will have to be absorbed immediately.

The reality is that not every subprime loan that's a little bit delinquent today is actually going to default. And the reality is that not every one that does default, and ends up in foreclosure, will be a deadweight loss to Fannie and Freddie. At the very least, they can auction off the doorknobs and lighting fixtures on eBay.

And more important of all, Fannie and Freddie would be able to spread these losses over as much as 30 years. When Fannie or Freddie guarantee a mortgage-backed bond, they are guaranteeing the bondholder that he will receive timely payment of interest and principal. Even if a given mortgage defaults, all Fannie and Freddie have to do is keep up the payments for the next 30 years not write one big check today.

And 30 years is a long time, over which Fannie and Freddie have a lot of earning power with which they can bolster their capital, perhaps without ever having to go to the markets for more or to the Treasury. In fact, with all the casualties in the mortgage lending business, Fannie and Freddie may end up as a super-powerful duopoly.

I'm not saying everything is peachy keen. I can see there are real problems out there. But the reality is that the economy has been remarkably robust to all the shocks it's experienced over the last year (or two and a half years, actually, which is when the housing bust started). So I'm not inclined to think that we're necessarily headed for recession just because there are so many high-profile things to worry about.

Especially when everyone worries about them so much. There's a line out there between pessimism and paranoia, and I'm afraid we've crossed it in the wrong direction. Does that mean stocks have gotten too cheap? Why, yes, it does.

Also See:

• Financials Aside, Stocks Aren't in Bad Shape

• Get Out of Logic-Defying Oil While You Can

• Summer Travel Reveals Stronger Economy

Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors. You may contact him at don@trendmacro.com.