It’s time to be wary about how the U.S. government is charging to the rescue to stem a collapse in confidence in the wake of IndyMac’s seizure and the crises at Freddie Mac and Fannie Mae.

The yellow light is flashing and storm warnings are up.
 

U.S. Treasury Secretary Henry Paulson has asked for the authority to buy unlimited stakes in Fannie Mae and Freddie Mac and to lend millions to them.
 

It’s not surprising that Paulson and Fed Chairman Ben Bernanke want to do their part to take the “sponsored” out of “government-sponsored enterprise,” or GSEs, when referring to Freddie and Fannie.
 

GSEs are the backbone of the housing market that sustains the biggest economy. They are global institutions increasingly on the front lines of U.S. foreign policy.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., said he’s uneasy about giving the blanket authority Paulson seeks without having any kind of checks and balances. However, Sen. Richard Shelby, R-Ala., the banking committee’s top Republican, said he’s never known

Congress to give an open-ended blank check to anyone.
Under questioning by senators, Paulson was forced to stress that he would protect taxpayer funds and assert his authority over Fannie and Freddie, the biggest sources of U.S. home financing, in case of a government intervention. Bernanke said Paulson would have the right to overhaul the companies’ management under the Bush administration’s proposals.
 

This all indicates Congress may not approve a plan to provide a backstop for the mortgage companies this month, as Paulson had counted on when he announced his rescue package July 13. Shares of the companies dropped and bondholders demanded higher premiums on their debt.
 

Paulson repeatedly said he had no intention of using the authority to buy unlimited equity in Fannie Mae and Freddie Mac, and the proposal was aimed instead at bolstering confidence in the firms so such emergency action wouldn’t be needed.
 

When one is dealing with the taxpayer’s money, ambiguity has no place. Federal officials are potentially layering taxpayer resources on top of massive systemic risk, as Shelby put it.
 

There may be no easy solution to this mortgage debacle, but if Congress is going to tackle the problem, it should do its level best not to make it worse.It’s time to be wary about how the U.S. government is charging to the rescue to stem a collapse in confidence in the wake of IndyMac’s seizure and the crises at Freddie Mac and Fannie Mae.