Business unusual: U.S. takeovers raise myriad questions

Still, given the dire financial problems faced by AIG, Fannie Mae and Freddie Mac, Baker said, it won't be difficult for the federal government to improve on their management.

"It's hard to see how they could do worse," he said.

The history of federal bailouts has been generally good, said Benton E. Gup, a finance professor at the University of Alabama and editor of the 2003 book "Too Big to Fail: Policies and Practices in Government Bailouts." The government even turned a $313-million profit on stock options it received when it provided $1.5 billion in loan guarantees to automaker Chrysler Corp. in 1980, he noted.

In those bailouts, however, the government did not take control of the companies. It simply provided guarantees for loans. The Federal Reserve and Treasury did the same thing in March when they authorized $29 billion in loan guarantees to JPMorgan Chase & Co. to facilitate its purchase of struggling brokerage Bear Stearns Cos.

But the bailouts of AIG, Fannie Mae and Freddie Mac are new territory, fueled by an attempt to avoid a global financial disaster.

"They are not taking over because they believe they can manage them better, but rather because it's a way to provide a government guarantee," said Pablo Spiller, a professor of business and technology at UC Berkeley. "This is the biggest financial crisis in the last 80 years."

The subprime mortgage mess crippled Fannie Mae and Freddie Mac, private companies known as government-sponsored enterprises because they were originally chartered by the federal government. Many investors believed the companies -- which buy mortgages from savings and loans, banks and other lenders to generate more cash for those lenders to make more home loans -- had the implicit financial backing of Washington.

Two weeks ago, the federal government seized control of the companies. The Treasury Department plans to buy as much as $100 billion in stock in each, expand their portfolios of mortgages and mortgage-backed securities until 2010, then slowly reduce their holdings.

To do that, the government placed Fannie Mae and Freddie Mac into a conservatorship run by the Federal Housing Finance Agency, a body created by Congress this summer. Paulson said having a government-appointed conservator was the only way he would commit taxpayer money to the bailout.