The federal government seized mortgage giants Fannie Mae and Freddie Mac over the weekend, fired their management and put taxpayers on the hook for billions of dollars.

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And if that sounds like a bad idea, consider the alternative: the failure of government-sponsored private companies that provide funding for three-quarters of all new home mortgages in the United States.

Fannie and Freddie could no longer survive without a massive infusion of capital. If Fannie or Freddie had failed, the nation's credit system might have failed along with them. Without Fannie and Freddie buying mortgages, bundling and selling them to investors, the mortgage market would have shut down.

Now, with luck, the credit markets will settle down, interest rates might decline a bit and troubled borrowers may get a chance to cut new deals. Wall Street responded positively to the news, with the Dow Jones closing up 290.43 points on Monday.

We're glad for Wall Street, but it is too bad Main Street has to foot the bill.

Congress and the Bush administration long ignored warnings from former Federal Reserve Chairman Alan Greenspan and others that the companies were too politically connected and held portfolios chock-full of risk. To some extent, the government is still protecting Fannie and Freddie shareholders. Sure, they still might be wiped out. But it was within the power of the feds to eliminate them as part of this deal, and Treasury Secretary Henry Paulson took a pass. Will shareholders in the next failed bank get the same deal? Let's hope not.

For years, Fannie and Freddie took excessive risk, knowing they had a sugar daddy who would bail them out. They were created by Congress to prop up the housing market, but their two-headed nature — private profit, public risk — has long perverted market forces. The two, meantime, have faced allegations they cooked the books, and it remains unclear just how much bad debt they hold.

Paulson hopes to prod Congress to end this failed model, but that hard work will now pass to a new administration and Congress. The best option might be an entirely private secondary mortgage market, but one that is subject to stricter government regulation. Another alternative: permanent nationalization.

As Paulson himself noted Sunday, "Market discipline is best served when shareholders bear both the risk and the reward of their investment."

So why didn't Paulson hold Fannie and Freddie shareholders fully accountable when he had the chance?

REPRINTED FROM THE MILWAUKEE JOURNAL SENTINEL.