Financial Bailout

Bowing to doomsday warnings that the U.S. and global financial systems could collapse, Congress passed a $700 billion rescue bill early this month. Part of a sweeping $1 trillion government plan to calm the stock market and unfreeze credit — the unprecedented rescue came amid mounting fears of a deep recession and the collapse of such major financial institutions as Lehman Brothers and Washington Mutual. The government's efforts included the federal takeover of mortgage giants Fannie Mae and Freddie Mac, which together hold or guarantee $5.4 trillion in mortgage loans — 45 percent of the national total. The quasi-governmental firms were dragged down by investments in subprime mortgages and other "toxic" financial instruments. Meanwhile, even as the Bush administration and congressional leaders were calling the bailout plan vital, fundamental questions were being raised, including: Is the bailout big enough? And did risky lending by Fannie and Freddie and poor regulatory oversight fuel the crisis?