The plan, which would place the mortgage finance giants Fannie Mae and Freddie Mac into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies’ new regulator. The executives were told that, under the plan, they and their boards would be replaced and shareholders would be virtually wiped out, but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

It is not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars and make any rescue among the largest in the nation’s history.

Read more.  From The Economist:

Fannie and Freddie have become indispensable to the housing market; they account for up to nine out of ten secondary mortgages in America, and owe or guarantee about $5.3 trillion. Meanwhile, hundreds of America’s banks rely on their shares to shore up their capital and foreign central banks are big holders of their bonds. Yet the two firms are woefully short of capital and in need of support.

What’s scary is that as much as the Iraqi invasion and occupation will fleece Americans in the decades - and century - to come, the full impact of the mortgage mess might overshadow it all.  After all, what we saw in 2008 was largely the sub-prime mess.  What about those who borrowed at prime and above?  We will only see the effects of the vast majority of mortgages in 2008-09.  While not as toxic as the sub-prime debacle, if you are indebted on a house and the value of said house (or property in general) falls, the reverse wealth effect can become a snowball that spirals down a vicious path, fast.