The decision to take over Fannie Mae and Freddie Mac signals an unprecedented intervention in U.S. financial markets. The move, by a conservative administration no less, is an indication of the concern surrounding the two mortgage companies and the impact of continuing uncertainty on global financial markets.

The United States is to be commended for the speed with which it has stabilized the two lending giants, but this move will not end the crisis that threatens markets. More action is required.

The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, known as Fannie Mae and Freddie Mac, respectively, are privately owned, government-sponsored entities that support the U.S. housing market by purchasing mortgage loans from banks that originate them, providing those banks with cash to make yet more loans. They package the loans into securities that they keep or sell around the world.

Altogether, the two companies own or guarantee about $5 trillion in home loans, about half the total in the U.S. At one point last year, as the credit crunch intensified, they held about 80 percent of all home loans originating in the U.S.

As housing prices plummet — having fallen 15 percent over the past year in 20 major metro areas, and with an estimated 29 percent of homeowners who bought in the past five years owing more on their homes than the properties are worth — the loans that back the mortgages look increasingly suspect. That means that Fannie Mae and Freddie Mac, which also ensure the repayment of loans, have huge losses on their books. In total, the two companies have lost $14 billion over the last four quarters.

That has two powerful implications: First, as Mr. Hank Paulson, the U.S. Treasury secretary, noted last weekend, "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement.

"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation."

Second, since the largest holders of those securities are foreign investors, many of whom are in Asia, the collapse of these two lenders would destroy significant amounts of their wealth — the People's Bank of China alone holds $340 billion in these securities — and do great damage to confidence in U.S. investments generally. With central banks historically holding a quarter of Freddie Mac debt, its implosion would undermine key reserves within the world financial system. In other words, they are too big to fail.

Facing those consequences, the U.S. Treasury engineered the takeover of the two companies last weekend. They were put in a conservatorship that allows their stock to keep trading but places common shareholders last for any claims. Under the plan, top executives at both institutions were replaced while the U.S. Treasury took $1 billion in preferred senior stock in each company. The U.S. government has also committed to providing up to $100 billion to each company to cover future losses, meaning that potential government exposure — and the U.S. taxpayer — could be on the hook for as much as $200 billion.

The Treasury will receive warrants to buy up to 79.9 percent of the common stock. The companies will also begin shrinking their loan portfolios by 10 percent a year by 2010. The Treasury will also buy billions of dollars in Fannie and Freddie mortgage securities on the open market, an unprecedented U.S. government intrusion into the market.

The decision to take over Fannie Mae and Freddie Mac will provide confidence and stability to financial markets. The immediate reaction was a drop in mortgage rates — a sign of decreased risk and uncertainty — and rising stock prices around the world.

Unfortunately, this is just a first step — if we don't count the other bailouts of financial institutions that have been engineered in recent months since the crisis first revealed itself. The bubble in the U.S. housing market continues to deflate. Housing prices must return to earth and when they do, there must be some reconciliation of the loans and mortgages outstanding. Until that floor is found, banks will be reluctant to make loans, and increase their exposure, which means that the U.S economy will continue to stumble.

This week's buyout should ease some of the pressure, especially for foreign holders of those securities. But with the U.S. unemployment rate reaching a five-year high of 6.1 percent last month, the outlook remains worrisome. More unprecedented action may be on the way.