Money for Fanny and Freddie

NY Times:

Alarmed about the sharply eroding confidence in the nation’s two largest mortgage finance companies, the Bush administration will ask Congress to approve a rescue package that would give the government the authority to buy billions of dollars in stock in Fannie Mae and Freddie Mac and also lend to the companies to meet their short-term funding needs, people briefed about the plan said on Sunday.

Separately, the Federal Reserve voted on Sunday to also open a lending facility for Fannie Mae and Freddie Mac, if they need emergency capital. The two companies would be able to post their own securities as collateral.

The plan calls on Congress to give the government the authority over the next two years to buy an unspecified amount of stock in the two companies. Over the same period of time, it would permit the companies to have greater access to the Treasury, by expanding the credit line that each company has from the Treasury. Each company now has a $2.25 billion credit line, set nearly 40 years ago by Congress. At the time, Fannie had only about $15 billion in outstanding debt. It now has total debt of about $800 billion, while Freddie has about $740 billion.

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Two questions come to mind. First, why are Democrats trying to dump several hundred million in bad debt into to these companies when they are already struggling? Second what does this say about the management of one of these institutions by Jim Johnson, the Democrat heavyweight who was originally on Obama's VP selection committee?

Another question that also comes to mind is whether the Democrats can muzzle Chuck Schumer to keep him from starting another run on financial institutions? Chris Dodd appears to be scrambling at this point to get his bill passed, but these developments suggest another look is needed.