IndyMac Bancorp and Bear Stearns before it are just the tip of the iceberg. With Freddie Mac and Fannie Mae hanging in the balance, bolstered for now by a last-minute government-led rescue plan, American taxpayers are facing what could amount to the country’s biggest margin call in history.

How precisely the Fed and Treasury—with the country in tow—come to find themselves in this position is a matter of fierce debate, but it is not one of ignorance or illusion.

The mission creep of the government-sponsored enterprises had but one underlying motive: profit. And while mission creep was appealing to some, those in opposition feared that Fannie and Freddie were not only taking on excessive risk with global implications, but also were drifting from their social mandates.

Part of FDR’s New Deal, Fannie was chartered in 1938 to ensure that the supply of mortgage credit through a secondary market would guarantee that home ownership would not be the right of the privileged few, but rather a vital societal bedrock for virtually all. It was a way of institutionalizing the American dream. In 1970, Freddie followed, helping to further increase homeownership (68 percent today), lower mortgage rates and eliminate regional disparities for mortgage credit.

That it took the dire warnings of foreign central bankers and Wall Street to get Washington moving on the GSEs’ turnaround is symbolic of just how far Beltway leaders have strayed from fulfilling their social contracts with American taxpayers, already the recipients of a $28-billion tab for the bailout of Bear Stearns. That, by comparison, is chump change should Fannie and Freddie be allowed to fail.

The far-reaching effects of a systemic failure in the wake of the collapse of the GSEs, which own or guarantee $6.5 trillion in mortgage debt between them — more than half of the country’s $12 trillion in mortgages — would be unconscionable. The denials of an implicit government guarantee of Fannie Mae and Freddie Mac debt were, at best, window dressing for the world stage. At worst, thinly veiled intentions to the contrary. If anything is too big to fail, it’s Fannie and Freddie.

To be sure, Treasury secretary Henry Paulson’s rescue plan for Fannie Mae and Freddie Mac is a band-aid, albeit a necessary one. But can what was once an important foundation for housing finance be restructured to function as it was originally intended?

Averted crises often have a way of quashing once-harsh rhetoric and slowing momentum to usher in real change. Business as usual in Washington is exactly what can’t happen with the resurrection of Fannie and Freddie—if, indeed, such a feat is possible. (c) 2008 U.S. Banker and SourceMedia, Inc. All Rights Reserved. http://www.us-banker.com http://www.sourcemedia.com

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