Federal Government Takes Over Fannie Mae and Freddie Mac

While most Americans, including US equity traders, were watching football yesterday, the Treasury Department announced the takeover of Fannie Mae and Freddie Mac in a move to bail out and recapitalize the troubled mortgage giants. The U.S. Treasury has taken a $1 billion equity stake in each company in the form of senior preferred stock and if needed could inject up to $100 billion into each firm. However, merely taking equity interests would not be in the "best interests" of American taxpayers according to Treasury Secretary Henry Paulson [Video | Text of statement released by Treasury Secretary Henry Paulson].

In what will be one of the largest, if not the largest, government-backed rescues in U.S. financial history, both companies were placed into a conservatorship to be overseen by the Federal Housing Finance Agency. Herb Allison, former chairman and CEO of TIAA-CREF, was named CEO of Fannie Mae, and David Moffett, former vice chairman and chief financial officer of U.S. Bancorp, will be Freddie Mac's new CEO. [JH]