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Treasury Secretary Henry Paulson is now focusing on winning broad political support for a rescue package for Fannie Mae and Freddie Mac. He has asked Congress to give him a blank cheque to shore up the two largest mortgage lenders.

Congress is expected to vote this week on housing legislation that will earmark US$300 billion (Bt10 trillion) to support those loans whose payments mortgage lenders agree to lower. The Government Accountability Office has estimated the cost of the bail-out at anywhere from $25 billion to $100 billion.

Failure at Fannie Mae and Freddie Mac could wreak havoc in the US financial system and send global financial markets into unprecedented turmoil. Both institutions have issued some $5 trillion in outstanding mortgage-backed securities. About $3.5 trillion worth are held by US institutions and funds and the remaining $1.5 trillion by foreign institutions and funds.

"I would rather not be in the position of asking for extraordinary authorities to support the government-sponsored enterprises," Paulson said in a speech on Tuesday in New York City.

"But I am playing the hand that I have been dealt. There is a need to support efforts that strengthen Fannie and Freddie's ability to continue to play their important role in financing mortgages and in our capital markets more broadly."

But Nouriel Roubini, a New York University professor and chairman of RGE Monitor, believes the $25 billion to$100 billion represents only a small step towards resolving the credit-market crisis, which eventually could top $1 trillion total in damage.

Obviously, there are not enough debates in the US over how exactly the government should tackle the housing market and the impending banking crisis.

Should the government take a drastic step to nationalise the failed institutions if their capital falls below the standard? Or should it inject capital into the institutions to save stockholders? As the leaders of global capitalism, US authorities are now doing everything against the concept of free enterprise they have cherished so much.

"We have to find a solution where government intervention prevents a disorderly outcome" in the housing market that leads to a "systemic banking crisis", Roubini was quoted as saying.

The housing bill will pour out only $300 billion, but that is barely enough to cover the total cost of $1 trillion. So far, US home prices have fallen only 18 per cent. Prices are expected to bottom out over the next two or three years, tumbling 30 per cent altogether.

Already, US bank stocks have crashed more than 60 per cent over the past year, representing a financial meltdown that is ongoing. A credit loss of $1 trillion would wipe out 75 per cent of US financial institutions' capital.

Roubini believes nationalisation of the 50 per cent of mortgages not owned or guaranteed by Fannie and Freddie will be necessary. Nationalising housing lets the government avoid having to nationalise the whole banking system.