Paulson's dramatic move offers 'stopgap' solution

The US Treasury's takeover of Fannie Mae and Freddie Mac is aimed at keeping the companies going into 2009, while leaving the next president and Congress to decide their long-term structure.

Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart placed the two firms in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.

"Some of this is a stopgap to try to prevent the mortgage market from falling apart," former Federal Reserve Bank of St. Louis President William Poole said. The federally chartered, shareholder-owned structure, with risks covered by taxpayers, is "an unacceptable situation", he said, projecting the Treasury may need to cover as much as $300 billion of losses.