Instant View: Key points and reaction

NEW YORK (Reuters) - The U.S. Treasury Department and Federal Reserve on Sunday announced sweeping measures to lend money and buy stocks if necessary in embattled mortgage finance companies Fannie Mae and Freddie Mac.

KEY POINTS: * "(Their) continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore, we must take steps to address the current situation as we move to a stronger regulatory structure," Treasury Secretary Henry Paulson said in a statement. * Paulson says U.S. Treasury to temporarily increase line of credit for Freddie Mac, Fannie Mae * Treasury to have temporary authority to buy equity in either firm if needed * Fed authorizes Fannie Mae, Freddie Mac to borrow at its discount window rate if necessary * Treasury official: GSE liquidity, equity backstops need Congress approval, could be done by end of week

COMMENTS:

THOMAS LAWLER, LAWLER ECONOMIC AND HOUSING CONSULTING,

LEESBURG, VIRGINIA:

"After Paulson's very, very short statement on Friday, I think a lot of people expected an announcement would be coming. What would be the primary reason to support them? It would be to alleviate anyone's concerns that the companies would not have access to liquidity. Everybody knew that Freddie had a bill sale on Monday.

"They both had a liquidity contingency plan already. They could sell certain assets from their liquidity portfolio. Or, collateralized borrowing using mortgages on their balance sheet. That has always been part of their liquidity contingency plan. The discount window figures in (because) I think folks were worried about 'what if they wanted to do collateralized borrowing,' but nobody wanted to do it (be a counterparty). It has always been part of their contingency plan, but these are crazy markets. The Treasury and the Fed... said let's tell folks that for whatever reason they can't access the debt market and collateralized borrowing, we're going to make sure they don't have a problem."

GEORGES YARED, FOUNDER AND CHIEF INVESTMENT STRATEGIST, YARED

INVESTMENT RESEARCH, MINNEAPOLIS:

"I think the government is going to do everything they can to keep Freddie and Fannie going other than having to take them over. I think Paulson was trying to stem any panic. He was saying it's bad but its not critical or fatal.

"It's a comfort statement more than anything to stem the selling. Its no longer a growth investment. They're trying to establish themselves as a stabilizing investment.

"That's a very comforting statement. He put a real quantifiable number on it.

"What investors were fearful about was the lack of liquidity, which would have necessitated the raising of additional capital. But with that statement by the CEO. That's a very very comforting statement.

"Both these stocks should go up tomorrow."

SCOTT FULLMAN, DIRECTOR OF DERIVATIVE INVESTMENT STRATEGY, WJB

CAPITAL GROUP, NEW YORK:

"Traders and investors have been looking for some signal that the market has reached a bottom. Continuous talks about sell-off capitulation has not been evident in the market for the past several weeks. This action over the weekend by the Fed and other government agencies shows that the government is trying to shore up not only the financial system but to create confidence in the U.S. equity market. The question now is whether the confidence can be sustained and if there are more skeletons in the closet."

MICHAEL KASTNER, HEAD OF TAXABLE FIXED INCOME, STERLING STAMOS

CAPITAL MANAGEMENT, NEW YORK:

"It's kind of like what we would have liked to see on Friday. The Treasury and the Fed drew a line in the sand. It gave them (Fed, Treasury) the most flexibility, but tells the market that they are on the case... That if the situation deteriorates to the extent of Bear Stearns, it can come to that. It's a win win situation for shareholders and the managements of Fannie and Freddie. My best guess is equities trade up, and bonds (Treasuries) a little weaker. MBS a little better."

SEN. CHARLES SCHUMER, DEMOCRAT OF NEW YORK; CHAIR OF CONGRESS'

JOINT ECONOMIC COMMITTEE:

"While Fannie and Freddie still have solid fundamentals, it will be reassuring to investors, bondholders and mortgage-holders that the federal government will be behind these agencies should it be needed. The Treasury's plan is surgical and carefully thought out and will maximize confidence in Fannie and Freddie while minimizing potential costs to U.S. taxpayers."

JOE KINAHAN, CHIEF DERIVATIVES STRATEGIST, ONLINE BROKERAGE

THINKORSWIM INC, CHICAGO:

"This is very bullish news as the government is basically saying that they will prop up both Fannie and Freddie, giving confidence to the mortgage industry.

"September stock index futures are already trading higher on Sunday evening based on this news. I think they will hold onto these gains barring any news overnight.

"It will be interesting to see how the stock market reacts once all the stock index futures, commodities and options are all fully trading on Monday morning."

JOSH ROSNER, MANAGING DIRECTOR, GRAHAM FISHER, NEW YORK:

"It's outrageous. It's offensive. Welcome to the socialist state. In capitalism, winners are supposed to reap rewards and losers are supposed to take losses for bad risk management. These are private companies."

"The government is trying to increase confidence but it will increase questions about the kind of market we are operating in. It increases the uncertainty of how the market works."

CRAIG HESTER, CEO, HESTER CAPITAL MANAGEMENT, AUSTIN, TEXAS:

"I'm sure that the administration and the Treasury and the Fed were taking the pulse of Wall Street to see if Freddie would be able to raise the $3 billion on Monday. What I would imply from this is that they got a signal from the investment banks that it would be challenging to raise the money tomorrow and so this decision was made to step in and try to calm the financial markets tomorrow morning. That's my guess.

"It should help the stock market a little bit. The Treasury market would probably drop on the news as they are asking to increase the national debt limit and also to increase the line of credit that Fannie and Freddie have at the Treasury. That implies more piling on to the federal deficit.

"I don't know what to make of it that they would buy more stock -- to me that would be a disappointing part of this proposal. I'm not sure investors are going to be excited about that -- I don't think the government should be bailing out the stock holders on the back of the taxpayers."

DAN FUSS, VICE CHAIRMAN, LOOMIS SAYLES, BOSTON:

"This is very positive news for Fannie and Freddie on their longer-term financing. My guess is that everything issued by Fannie and Freddie goes up, except for the short-term paper as they have not been affected in a meaningful way. And many were worried about their short-term funding in the wake of Bear Stearns' problems with rolling over their short-term paper. That was an invalid worry with the GSEs. This is probably bad news for those who have been short the stock!"

MARKET REACTION: STOCKS: U.S. stock index futures surged CURRENCIES: U.S. dollar edged up against euro, yen BONDS: U.S. 10-year Treasury futures fell nearly half a point