ept. 6 (Bloomberg) -- Treasury Secretary Henry Paulson will use his authority to rescue Fannie Mae and Freddie Mac, likely placing the beleaguered mortgage-finance companies under government control as early as this weekend.

The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview after being briefed by Paulson. The government would make periodic injections of funds by buying convertible preferred shares or warrants in the companies as needed, avoiding large up- front taxpayer costs, according to a person briefed on the plan.

``This is no bailout, particularly for the shareholders,'' Frank said. The federal government ``will be senior to all shareholders, preferred and common.''

Paulson gathered with Federal Reserve Chairman Ben S. Bernanke, Federal Housing Finance Agency Director James Lockhart, Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron this weekend on a plan to take control of the government-sponsored enterprises, which have operated as private shareholder-owned corporations for almost 40 years. Paulson is seeking to halt the crisis of confidence in Fannie and Freddie following $14.9 billion in losses in the past year that boosted their borrowing costs and hampered the mortgage market.

Paulson was prompted to step in after Morgan Stanley, which had been hired to analyze the companies' financials, concluded that Freddie, and to a lesser extent Fannie, relied on accounting maneuvers to meet their capital requirements, according to people with knowledge of the findings. The accounting overstated the value of their actual reserves, the people said.

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This may not, of itself, be a sign of creeping fascism, except tha it puts the Treasury Dept more closely abed with the mortgage industry.


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