Prometheus 6

Both presidential nominees expressed support for the government’s plans....Senator John McCain’s running mate, Gov. Sarah Palin, said at a rally in Colorado Springs that Fannie Mae and Freddie Mac have become too big and too expensive.

Yo, John, get your girl on message.

Under the plan, the Treasury Department itself will begin buying mortgage securities, providing crucial market support.

As a result of the government’s intervention, the cost of borrowing for Fannie Mae and Freddie Mac should decline, because the government will be insuring their debts. Equally important, because the government is backing the companies, they will continue to buy and sell home loans.

But the plan will probably do little to stop home prices from falling further. And foreclosures are almost certain to rise.

And that's a nice summary of the government's priorities.

Mortgage Giant Overstated the Size of Its Capital Base
By GRETCHEN MORGENSON and CHARLES DUHIGG

The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced on Sunday, came together after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

The proposal to place both companies, which own or back $5.3 trillion in mortgages, into a government-run conservatorship also grew out of deep concern among foreign investors that the companies’ debt might not be repaid. Falling home prices, which are expected to lead to more defaults among the mortgages held or guaranteed by Fannie and Freddie, contributed to the urgency, regulators said.

Investors who own the companies’ common and preferred stock will suffer. Holders of debt, including many foreign central banks, are expected to receive government backing. Top executives of both companies will be pushed out, according to those briefed on the plan.

The cost of the government’s intervention could rise into tens of billions of dollars and will probably be among the most expensive rescues ever financed by taxpayers.

Both presidential nominees expressed support for the government’s plans. Senator Barack Obama, Democrat of Illinois, said as he campaigned in Indiana that not acting could place the housing market in further distress.

Senator John McCain’s running mate, Gov. Sarah Palin, said at a rally in Colorado Springs that Fannie Mae and Freddie Mac have become too big and too expensive.

The takeover comes on the heels of a rescue of the investment bank Bear Stearns, which was sold to JPMorgan Chase in a deal backed by taxpayers. Already, the housing crisis has cost investors and consumers hundreds of billions of dollars.

The big question now is whether the federal government’s move to take over Fannie and Freddie will restore investor confidence in the nation’s credit markets, help stabilize the stock market and keep loans flowing to creditworthy borrowers.