- Bil Ackman of Pershing Square has suggested the government inject money via the issue of a new class of senior subordinated debt to cover the GSE’s short and medium term needs. His full letter to Hank Paulson is available here.

- Brad DeLong mulls over the Bush administration’s social democracy detour, and wonders whether it’s smart or dumb.

- Chris Bowers at Open Left notes that Americans are supposed to hate “big government,” not applaud it. Yet nationaising the housing market is very big government indeed.

- Felix Salmon says that the fact that all this is happening over a weekend — Bear Stearns-style — makes it feel like an emergency, which it isn’t.

- Paul Kedrosky, on the other hand, says: “This is set to be epochal, a true “Where were you when…” moment, a before/after sort of of thing.”

- Robert Peston sees an event of profound significance

- Yves Smith has done some first-cut back of the envelope calculations. The big issue is the GSE preferred stock - damaging its value further could spark a strong of bank insolvencies across the US, since many regional banks were stuffed with the paper.

- Justin Fox at Time wonders whether it is even possible to come up with a plan that reassures Fannie and Freddie MBS buyers, protects taxpayers, and at least partially protects the preferred shareholders.

- John Hempton at Bronte Capital has spent the weekend puzzleing over the question: “Why now?”

The market should have taken the US government’s impllicit guarantee of Fannie and Freddie debt for what it was– a government guarantee. But it didn’t. Instead of shrinking to 30bp, the spread between Fannie and Freddie debt and US treasuries stuck at 130bp.

Herein lies the answer:

Given this the government was eventually going to have to pay the Frannie senior debt. Over the next couple of years then Frannie was effectively going to raise over a trillion dollars in US government debt – but at spreads 100bps or more higher than necessary. The cost to the Federal government of delay is thus more than 10-20 billion annually over the life of that debt. If the debt had five year maturities on average then the cost just of delay could edge 100 billion.

(Since early August Hampton has been constructing an excellent and exhaustive analysis of the GSE debacle, Picking apart Fannie Mae - main posts here, here and here.)