It's a case where market psychology became more important than the fundamentals, and that's why they had to act. There's no immediate crisis. It's not like they're going to run out of money tomorrow or Monday. It's a decision that the market is simply not going to accept the status quo. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

Is it just me or do others notice how often unwanted changes in market prices (or, in this case, difficulties in clearing) are attributed to "psychology" or "speculation." The same chaps who cheered the rapid ascent of US equity prices during the 90s as a sign of US superiority (no psychology or speculation driving that!) now decry the rise in oil prices as speculatively driven and argue, as per the above, that with housing values falling and unemployment rising, international investor fears of GSE Mortgage Bonds defaulting is just psychological.

Evacuating a city before a hurricane hits is, under that head, psychological too. After all, my house isn't flooded or blown over....yet.

I suspect, now that Fannie and Freddie have been nationalized, (yes, I know the powers that be would prefer a different term, and they might benefit from a read of Shakespeare's views on the smell of rose by any other name) the good Senator is about to learn that the fundamentals of US housing finance are unsound.

After all, if the fundamentals were solid, surely at least a few SWFs who have been so eager to purchase equity stakes in major financial institutions (like Citi, UBS and ML, to name a few) would be willing to inject some capital into the GSEs.

OK, enough ranting. Let's take a look at the policy.

According to RGE Monitor:

Key features of government intervention (final deal to be announced before Asian markets open):
1) Fannie and Freddie and their combined $1.6 trillion investment portfolio business financed through agency bond issuance will be taken under a government-run conservatorship for an orderly restructuring process--> new housing law says that under a conservatorship, the authorities would aim to preserve Fannie and Freddie assets, rather than dispose of them.
2) The value of the companies' common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares likely to be protected by the government. (Washington Post)
3) taxpayer backstop for combined $5.3 trillion F&F owned or guaranteed debt: taxpayer funds will be used to pay any cash-flow shortfalls (e.g.