US spells out Fannie-Freddie backstop plan

How is that the government can extend unlimited credit to prop up financial institutions but can't extend enough credit to keep people in their homes. Given the role predatory lending played in creating the current credit crisis, how is it that the very institutions who have created the problem are being rewarded for their behaviour, while ordinary citizens are being thrown out of their homes.

If the Fed and Treasury can find billions in credit and what amounts to a guarantee of debt (through a temporary authority of the Treasury to purchase equity) but they can't provide the same security to homeowner? If they did the economy would be in much better shape than it is. You can glean a hint from the the network map presented here (courtesy of Silobreaker).

Here is the full statement from Treasury:

Treasury Secretary Henry M. Paulson, Jr. issued the following statement:

"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.

GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure.

In recent days, I have consulted with the Federal Reserve, OFHEO, the SEC, Congressional leaders of both parties and with the two companies to develop a three-part plan for immediate action. The President has asked me to work with Congress to act on this plan immediately.

First, as a liquidity backstop, the plan includes a temporary increase in the line of credit the GSEs have with Treasury. Treasury would determine the terms and conditions for accessing the line of credit and the amount to be drawn.

Second, to ensure the GSEs have access to sufficient capital to continue to serve their mission, the plan includes temporary authority for Treasury to purchase equity in either of the two GSEs if needed.

Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer.

Third, to protect the financial system from systemic risk going forward, the plan strengthens the GSE regulatory reform legislation currently moving through Congress by giving the Federal Reserve a consultative role in the new GSE regulator’s process for setting capital requirements and other prudential standards.

I look forward to working closely with the Congressional leaders to enact this legislation as soon as possible, as one complete package."