NOT the right option...

Ronald Regan once said that the scariest words were "I'm from the government and I'm here to help."  Well, Fannie Mae and Freddy Mac didn't hear those exact words.  No, what they heard was "We're the government and we're here to take over."

Yes, the two biggest mortgage companies are being nationalized so that the Federal government can "fix" the credit mess that it made.  Just as it's "fixed" everything else that it's gotten its hands on.  The government is referring to the nationalization of two publicly owned companies as a "stop-gap measure."  I doubt it will stay that way, any more than Social Security or Welfare remained a "stop-gap measure."

I find it ironic that the excuse that's been used to seize these public companies is that they used creative bookkeeping to show more capital than they had.  I mean, isn't that what the government typically does, counting Social Security taxes in with the regular taxes to show a surplus?  How in the world do they expect us to trust them to put a stop to Fannie and Freddie's number fudging?  

Not everyone feels that way: world markets have demonstrated that they believe that this is a good move.  People seem to think that mortgage rates are about to go down, because the government is standing in to guarantee the debt.  The markets are rallying on the news, believing that the dangers of imminent collapse is over.

Granted, the government's seizure of Fannie Mae and Freddie Mac will prevent immediate collapse, but I have no doubt that it will eventually cause more problems than it prevents.   If credit stays cheap and easily accessible, and interest rates stay fairly low, people won't change their behavior with their money.  If people don't change their financial behavior, more will attempt to file for bankruptcy.  With the government standing in to guarantee the loans, mortgages will become the same type of debt as student loan debt: the type that the idiots that take on the debt cannot wipe out with a bankruptcy filing.  

Where it goes after that, I don't know.  I only know enough about the way the economy works to be able to see that far.  I can see that, eventually, when enough people default, there will be severe ripples in the rest of the economy.  Once again, I don't know enough about higher level finance to be able to guess what those effects will be, only that they'll be bad.

Out of all the options out there to "fix" the problems in the credit industry, this was the worst one that could have been chosen.

Update:  At least I'm not the only one who thinks this is a step closer to socialism.  Not only that, but "This is welfare for the rich.  This is socialism for the rich.  It's bailing out the financiers, the banks, the Wall Streeters."  And this was something that both sides of the aisle endorsed.

Government agencies started the mess, trying to build a house of cards on a foundation of air.  They're still trying to build.