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Can't believe there's no thread on this yet. This is suddenly getting a lot of media attention, though not above-the-fold media attention necessarily: NPR ran a story (and has a 3:51 audio link at the top of said column), as well as Forbes, HuffPo, and the WSJ. (The latter two are pretty long and thorough.) The Los Angeles Times emphasizes that nothing official has been officially decided yet, but nevertheless says that a public takeover is definitely on the table, at least:
Treasury Secretary Henry M. Paulson Jr. called in top executives of Fannie Mae and Freddie Mac late Friday to hammer out details of a rescue plan for the troubled mortgage giants that could go so far as a full government takeover, according to people familiar with the effort.
I think the only reason this isn't huge yet is that it hasn't been made official yet. If there is in fact a takeover, I fully expect to be able to remove that "not above-the-fold" qualifier from the media coverage. To me, this is massive news even as a somewhat credible rumor.
Nationalizing Fannie and Freddie would be one of the biggest government moves in the financial sector since the Securities Act (1933) and Securities Exchange Act (1934) (creating the SEC), especially if they ended up in government ownership for an extended period. The keyword used in many of the articles out there right now is that Fannie & Freddie would be placed in a federal "conservatorship," which speaks of a temporary arrangement. That could mean that Fannie & Freddie would be placed under federal control (and existing equity shareholders cashed out--that's what happens when you invest in a business that goes belly-up) long enough to break them up into smaller entities that would not be "too big to fail" and would no longer have the nebulous federal guarantee behind them that Fannie and Freddie have always enjoyed (which allowed them to take much larger risks than they otherwise could have ... like a trapeze artist with a net vs. one without one). The NPR segment seemed to suggest that that was the likeliest outcome, but that's not the only way a conservatorship can end; they could just as easily be reorganized and then assigned a permanent home within the federal government.
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