Recent reports of Fannie Mae and Freddie Mac's troubles were splashed across headlines last week. Shares are down 60 percent this year.

Even the presidential candidates got in on the action. John McCain said, "At this time I don't think that there is a requirement for a government bailout." However he agrees with many experts that the two institutions must not fail.

Obama advisor Jason Furman issued a statement that Obama believes that "the challenges facing Fannie and Freddie are part of the broader weakness in our economy." He blamed President Bush, saying "willful neglect" by the White House of trouble in the housing market and other sectors of the economy let the problems fester to crisis stage.

The New York Times reported Friday that senior Bush administration officials are considering a plan to have the government take over one or both of the companies if their problems worsen.

Why would the government bail out these mortgage giants? The downward spiral of their stocks could directly affect the housing recovery currently underway -- and put a real damper on the economy.

Experts suggest that their demise could snowball into a credit market meltdown.

Published: July 14, 2008

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