The unprecedented bailout of Fannie Mae and Freddie Mac is official
Here too is coverage from the Wall Street Journal:
"U.S. federal regulators outlined their takeover of Fannie Mae and Freddie Mac Sunday morning, including control of the firms by their regulator and a Treasury Department purchase of the firms' senior preferred stock.
"The plan, outlined jointly by the Treasury Department and Federal Housing Finance Agency, also includes a plan for the Treasury to purchase mortgage-backed securities from the firms in the open market, and a lending facility through the Treasury from its general fund held at the Federal Reserve Bank of New York.
"Treasury Secretary Henry Paulson said the two firms are "critical to turning the corner on housing" and that the plan should promote stability in the secondary mortgage market and lower the cost of funding.
"Through the four actions we have taken today, FHFA and Treasury have acted on the responsibilities we have to protect the stability of the financial markets, including the mortgage market, and to protect the taxpayer to the maximum extent possible," Mr. Paulson said.
"Mr. Paulson acknowledged that the radical proposal does pose risks for U.S. taxpayers, giving the U.S. government a "large stake in the future value of these entities."
Of all the components of this plan, the idea of Treasury purchasing MBS in the open market is the most striking. Our government is now officially in the business of deciding whether MBS pricing is "correct" or not, and intervening at will to manipulate pricing in the MBS market. For good intentions, of course (the desire to lower mortgage rates). But this is one heck of a scary precedent.