The Economist has a new article out, End of Illusions. It goes over the history of Freddie Mac/Fannie Mae, how they operate and is implying the US financial system is a house of cards. (or in this case, Turtles propping up the world analogy, sorry Hindus!)

They (Freddie Mac, Fannie Mae) were set up (see article) to provide liquidity for the housing market by buying mortgages from the banks. They repackaged these loans and used them as collateral for bonds called mortgage-backed securities; they guaranteed buyers of those securities against default.