The U.S. mortgage system works like this: Freddie Mac and Fannie Mae make the housing market more liquid by buying up mortgage loans satisfying reasonable crite

The U.S. mortgage system works like this: Freddie Mac and Fannie Mae make the housing market more liquid by buying up mortgage loans satisfying reasonable criteria. Other banks can issue mortgages and then immediately resell the loans back to Fannie and Freddie. This makes it easy to get a mortgage through any bank if you have a reasonable financial history, because the other banks don't have to serve out the loans they issue. Since Fannie and Freddie were implicitly backed by the Fed, they were able to leverage their capital much more than a normal bank in taking on loans -- only a few percent of their issued loans were backed up by real money. These beasts were designed to be too big to fail, and in the unlikely event that they did fail, the companies' histories indicated that the Fed would step in. This is a huge advantage for the two companies, and over the years they essentially squeezed other banks out of the prime mortgage market. The entire housing market therefore depends on the ability of Fannie and Freddie to buy up the mortgage loans that other banks issue. Without them, the pool of available capital to support those loans would suddenly shrink dramatically, meaning much fewer loans can be issued. Meaning none of us could buy a house for the next few years. The Fed is stepping in because (1) they created both companies originally, though they cut the umbilical cord at some point; (2) they're still tied into the companies' finances in various ways; and (3) crippling the housing market and setting off a chain reaction of more bank collapses is not something this economy needs, particularly in an election year. There are a few other government-sponsored enterprises that would also get this sort of rescue if needed. Boeing isn't one of them, but as a matter of national security, I doubt the government would allow them to fail. (I still can't quite explain why Bear Stearns got bailed out, but they did.)