In what’s being considered the worst financial credit crisis in the United States since the 1930s, the federal takeover of Fannie Mae and Freddie Mac is one of the biggest events. The crisis as a whole stems in part from subprime mortgage hedge fund issues that began to come to a head in 2007, and consists of a long line of financial restructurings, mergers, bankruptcies and major government market interventions. Some of the leading symptoms of this crisis are large financial losses for major financial firms (as with Bear Stearns) involving impairment of capital, credit rating downgrades, naked short selling, and impairment of capital. These lead to a decline in market confidence, coming back to the subprime mortgage crisis. In addition, these events affect not only the finances of those of us in the United States, but may leak out into a world wide credit crisis, as foreign markets and investors lose confidence.

In September of 2008, James B. Lockhart, the director of the Federal Housing Finance Agency (FHFA), announced the decision to put two government sponsored enterprises (GSEs) into FHFA – run conservatorship. Those two GSEs were The Federal National Mortgage Association (commonly known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac). The United States Treasury Secretary Henry Paulson and Federal Reserve Bank Chairman Ben Bernanke expressed their support for the federal takeover.

And so the Housing and Economic Recovery Act of 2008 passed Congress on July 24, 2008 and was passed into law by President Bush on July 30, 2008. The act enables the FHFA to have expanded regulatory authority over both Fannie Mae and Freddie Mac, and it gives the United States Treasury the authority to advance funds to Freddie Mac or Fannie Mae in order to keep them stabilized. The funds the Treasury can advance are limited by the amount of debt that the entire federal government is permitted to commit to by law. The debt ceiling for the Treasury was raised to $10.7 trillion in anticipation of the need to lend funds to stabilize Fannie Mae or Freddie Mac, which is a jump of $800 billion dollars.

The federal takeover has ostensibly helped in leveling out the country’s current financial crisis, but we are not out of the woods yet, and it remains to be seen what other problems will arise out of the crisis.