ON THE FANNIE AND FREDDIE BAILOUT.

This is a big deal. Economists, both left and right,, seem united, on the necessity of the deal. Here's a quick roundup of analysis. First, Tim Duy:

The Freddie/Fannie bailout was inevitable. There was never really an implicit guarantee of a taxpayer backstop for these institutions; in practice, the guarantee has always been explicit. Moreover, they evolved into institutions that are too big to fail. Cutting them loose at this juncture would be an unacceptably risky strategy. Teaching lessons in moral hazard (beyond that of the substantial losses likely to be borne by shareholders) is interesting coffee table talk, but not practical policy when the potential downside broadly impacts the public. True, there may be a consequence for future taxpayers, but they too will be spared the ramifications of letting these mortgage giants collapse today.

Paul Krugman:

I wish people wouldn’t say that Fannie and Freddie have been “nationalized.” I mean, it’s basically accurate, but it conveys the wrong impression.The fact is that Fannie Mae was originally a government agency; it was privatized in 1968, not for any good economic reason, but to move its debt off the federal balance sheet (and Freddie was created 2 years later as a competitor.) Private ownership of Fannie and Freddie never made any real sense, and was always a crisis waiting to happen.So what we’re really seeing now is deprivatization. It’s not something like the UK government seizing the steel mills; it’s more like firing Blackwater and giving responsibility for diplomatic security back to the Marines.

Tyler Cowen:

Let's say that the Treasury did not support the debt of the mortgage agencies. The Chinese bought over $300 billion of that stuff and they were told that it is essentially riskless. The flow of capital from them and from other central banks, sovereign wealth funds, and plain old ordinary investors would shut down very quickly. The dollar would fall say 30-40 percent in a week, there would be payments system gridlock, margin calls at the clearinghouses would go unmet, and only a trading shutdown would stop the Dow from shedding half its value. Most of the U.S. banking system would be insolvent. Emergency Fed/Treasury action would recapitalize the FDIC but we would lose an independent central bank and setting the money supply would be a crapshoot. The rate of unemployment would climb into double digits and stay there. Many Americans would not have access to their savings. The future supply of foreign investment would be noticeably lower. The Federal government would lose its AAA rating and we would pay much more in borrowing costs. The deficit would skyrocket.And I haven't even mentioned the credit default swaps market. Well, I have now.

Calculated Risk:

The bigger questions are (in no particular order): 1) How much does this cost taxpayers (if anything)? 2) What happens to treasuries? 3) What happens to the existing preferred? 4) What happens to FDIC insured banks that hold the existing preferred? 5) What happens to the stock market? 6) What happens to mortgage rates? 7) What happens to the housing market and the economy?

Also, Yves Smith, John Hempton ("I am staggered by rapid logical action. But so be it and for once I think a Bush administration action is sensible."), Nourel Roubini, Andrew Samwick ("A new twist on the Ownership Society...As of this morning, we -- the taxpayers -- apparently own Fannie Mae and Freddie Mac."), Dean Baker...