In my opinion, the government really has no choice. Our economy is built and backed by credit and investor confidence. If the American people lack faith in their ability to borrow or use credit, or banks have no money to lend, then people will stop buying and start hoarding cash. The economy would come to a screeching halt, as opposed to riding out what should have been a much more subtle recessionary cycle. No one wants to see our tax dollars being spent on bailouts ultimately stemming from aggressive loans made on overvalued properties to consumers in over their heads. The greater good is served here by intervening and providing Fannie Mae and Freddie Mac with a life line in order to keep stability flowing to the next layer of financial institutions -- banks and lenders. Investment banks and financial institutions have lost their values quickly as the market assess the unlikelihood of any bailout monies being extended beyond quasi government agencies like Freddie Mac and Fannie Mae. The nature of the investing cycle will make these other institutions, as they clean bad loans off their books, attractive again to investors looking for cheap buys.

Government’s role in the private economy is too big of subject to handle without writing a book! To try to answer your question, in the case of Fannie Mae and Freddie Mac, the situation is that the two control about 50 percent of all mortgages in the United States at an estimated $5 trillion. These two have a huge impact on the housing market which as we all know is not well. Fannie Mae and Freddie Mac were created by Congress to provide a steady stream of money for home mortgages. The two companies combined had over $500 billion of short-term debt outstanding. If the companies can't persuade investors to give them money, they have no way of paying off that debt. Under the government’s bailout plan they would be allowed to borrow from the Federal Reserve’s discount lending window when needed. The Treasury Department would also like to buy shares of the companies’ stock using tax payer dollars. The message to investors is that the companies have all the money they need and aren't going to collapse anytime soon, so they shouldn't be afraid to buy their securities. What impact will this have on the government? Time will tell based on how long it takes for the real estate market to recover, but in the short-term it will help keep the lending market functioning to help solidify the real estate market.

For the record, I am against government bailouts that saddle younger and future generations with debt. Having said that, the fact of the matter is that Fannie Mae and Freddie Mac (which are government-sponsored enterprises or quasi-government and private companies) have always been perceived as “too big to fail.” If action had not been taken, the repercussions to the U.S. and global economies would have been dreadful, to say the least. By the way, that was the same reason that the Federal Reserve backed JP Morgan’s purchase of Bear Stearns back in March. It was not something that fiscal conservatives wanted to see happen, but was necesssary due to the frailty of the world financial markets; if the Fed hadn’t stepped in, you most likely would have seen a domino effect with many other failures following suit. The only way to effect change when it comes to fiscal, energy, moral, etc. policies is to truly hold your elected officials' feet to the fire.