According to the Associated Press (who should receive credit for Mr. Paulson's photo above)  the Bush Administration has announced Sunday that the federal government was taking control of mortgage giants Fannie Mae and Freddie Mac.

We assume this is not a surprise to any of our readers, and let me reiterate that in a strange sort of way, the federal government didn't have much of a choice. Mr. Paulson summed it up quite neatly for us all in his announcement.

The Treasury Secretary said the actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."

The huge potential liabilities facing each company, as a result of soaring mortgage defaults, could cost taxpayers tens of billions of dollars, but Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."