The other foot has finally dropped.

The U.S. Treasury announced Sunday morning that they have placed the two largest sources of mortgage capital under government conservatorship. That, effectively, means that Freddie Mac and Fannie Mae have become wards of the state.

On the upside, the economy has finally found bedrock: the government can back and guarantee all of Freddie and Fannie’s $5 trillion dollars worth of obligations. That’s a lot of money.

The two mortgage giants have seen their balance sheets spiral out of control in the past year, as the mortgage crisis demonstrated the weakness in the system that had borne them. The situation quickly worsened as credit dried up and capital became increasingly difficult to obtain.

Many analysts had insisted for months that complete collapse of Freddie and Fannie was only a matter of time. As Treasury Secretary Paulson stated in Sunday’s announcement, they are “so large and interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe.”

This is an excellent first step toward stabilizing, if not ending, the credit crisis currently gripping our financial system. A shortage of credit affects everything from prices to lending — including student loans — to investment portfolios, including things like university endowments.

Granted, taking these businesses onboard is going to cost the taxpayers tens of billions of dollars. It must be remembered, however, that this is a mess that, at its core, originated with the taxpayer as well. All those interest-only loans, all those McMansions financed on McDonalds-esque incomes, and all the other financial gimmicks instituted to allow more people to spend more money that they didn’t have were the mortar used to build what eventually became the current crisis. Granted, the system was essentially flawed to begin with — what with the perverse incentive structure used by most mortgage brokers, for instance — but the consumer took advantage of it.

Government takeover of anything tends to make at least a few people nervous, as well. As long as this is a temporary solution to a temporary problem, that hopefully won’t become a social security-style issue decades from now.

In order for our economy to ultimately emerge from its current state, basic financial literacy must become a priority. The intelligent consumer is the basis of any free market, and spending responsibly in the first place could’ve gone a long way toward avoiding this altogether.