I’ve given the Treasury the benefit of the doubt so far with respect to its rescue efforts. However, preliminary reports of a new initiative have me reconsidering my position. The new plan would use nationalized mortgage giants Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) to lower the 30-year fixed mortgage rate down as far as 4.5%, over a full point lower than the current level.

Didn't we learn anything?
Political pressure to provide "affordable homeownership" was one of the root causes of Fannie and Freddie's failure and the broader housing crisis. Now the government wants to use both organizations to artificially reduce mortgage rates in order to prop up home prices?

I understand that we are in a crisis, but large private lenders, including Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and Bank of America (NYSE:BAC), are already instituting loan modification programs to avoid foreclosures. As far as new lending is concerned, opportunistic regional banks such as US Bancorp (NYSE:USB) and BB&T (NYSE:BBT) are stepping in to fill the credit void for qualified borrowers -- just the way capitalism is meant to work.

We mustn't scare off private capital
There is no question the government has a massive role to play in averting the worst of this crisis; however, I wonder if it isn't beginning to overstep its bounds. Private capital has its own role to play -- if we will allow it to. Yesterday, China's major sovereign wealth fund, China Investment Corp -- owner of a 9.9% stake in Morgan Stanley (NYSE:MS) -- said that it no longer has "the courage to invest in financial institutions" because the "[U.S. financial regulatory situation] is changing every week."

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Alex Dumortier, CFA has a beneficial interest in BB&T, but not in any of the other companies mentioned in this article. US Bancorp, JPMorgan Chase, and BB&T are Motley Fool Income Investor recommendations. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.