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.

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.

As a free market advocate I am concerned about federal bailout of private financial firms whether it is Bear Sterns, Long Term Capital or Fannie Mae and Freddie Mac. What was the SEC and other federal regulatory agencies (OCC) doing when these firms were engaging in ridiculous practices?

Freddie Mac today reported its corporate earnings for the second quarter and as expected by many analysts it eneded up having a big loss. The mortgage lender company lost 821 million dollars in the second quarter.

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.

The financial crisis symptom de jure: the struggles faced by Freddie Mac and Fannie Mae the giant mortgage loan repackaging companies chartered by the U.S. government, and (assumed to be) guaranteed by Congress. In fact the loan guarantees with the Treasury Department that are available to the companies amount to only a few billion dollars, so the US government's official obligation to help is miniscule.

The Federal Housing Finance Regulatory Reform Act of 2008 passed the senate with an overwhelming 19 to 2 vote. The new act is designed to help stem the foreclosure crisis and to reform regulations of Fannie Mae, Freddie Mac and the Federal Home Loan Bank system.

Freddie Mac shares rose this morning as the company posted a narrower loss than estimated by analysts. Freddie lost $151 million in the first quarter.