The historic bailout of Fannie and Freddie by the US Treasury turned out to be only one story in a very interesting and volatile trading day yesterday. The repercussions of the Treasury's action will be weighed for some time, however, the tightening of mortgage bond spreads seems to be the most positive immediate benefit of the plan.

Secretary Henry Paulson and FHFA Director James Lockhart, on September 07 2008, announced the official government takeover of mortgage giants Fannie Mae and Freddie Mac. The takeover comes as the mortgage industry continues to deteriorate due to tightening credit standards and the continued downturn in home values.

Looking to the future and planning to do the right thing is life and death. Yet we live in a country that does neither. On Friday, the other shoe fell off the cliff as Bush and his minions sneakily announced that Fannie Mae's investors are now getting $0.00 on their savings. All this money is being eliminated in order to 'save' US house buyers and bankers who did very, very foolish, stupid things when the sun was shining.

The short answer whether Treasury Department can take over Freddie Mac and Fannie Mae is: “yes”, initially the government can do whatever they want to do. The long answer is “no”, it’s not that easy.

The Wall Street Journal is reporting Treasury Is Close to Finalizing
Plan to Backstop Fannie, Freddie.

''We would appreciate if our US partners were more engaged in strengthening their own economy instead of sorting out international relationships,'' said President of Russia Dmitry Medvedev in an interview to Al Jazeera TV Channel on Aug 26.

Fannie Mae posted a net loss of $2.3 billion, excluding preferred dividend payments, and said it would slash its dividend by 85 percent.

I have said numerous times that the main reason for bailing out the mortgage giants Fannie Mae and Freddie Mac was not for the US homeowner but for the Chinese who have bought a huge portion of our mortgage backed debt.

Treasury Secretary Henry Paulson, is currently urging congress to pass legislation that will bolster Fannie Mae (FNM) and Freddie Mac (FRE). If his words are any indication, congress will actually pass laws this week that will ”provide a liquidity backstop and a capital backstop to the GSEs.”

That’s according to Jim Rogers, George Soros’ former fund manager, when asked his thoughts on the Fannie/Freddie bail out. Simply put, Hank Paulson and Ben Bernanke are bailing out their friends on Wall Street and passing the buck to 300 million American taxpayers.

Treasury and Fed Promise Bailout for Fannie and Feddie, SEC Crack Down on Rumors. Bloomberg reports that US Stock-Index Futures Gain; Fannie Mae, Freddie Mac Advance.