Fannie and Freddie: a fudge that works

Hank Paulson’s rescue plan for Fannie Mae and Freddie Mac shores up the privately owned companies and their combined $5.2tr balance sheets, allowing them to soldier on through the US housing crisis. But Fannie and Freddie’s position remains as ambiguous as ever — everyone thinks the state backs them, but the government will not actually guarantee them. Ideologically unsound it may be, but muddling through is the order of the day and only when the smoke clears should radical changes be considered.