While this sounds good in theory, I get the feeling this is one of those easier-said-than-done situations. Even if there was a replacement liquidity provider ready to replace the two firms, letting them fail would cause a huge amount of stress for the market.

True. It's unclear exactly how the federal government "implicitly" backed Fannie and Freddie, besides occasional congressional meddling and the companies' history as GSEs, but other financial agencies and investors treated them as if they knew the government would step in if there was a problem -- and it turns out they were right.