Fannie Mae and Freddie Mac are often referred to as “government sponsored entitities” but which government are we talking about? As it turns out, the Russians, Taiwanese and other funds sovereign hold most of the bonds of these companies. China, in particular, has between $ 400 billion and 600 billion invested. That represents a whopping 10% of China’s Gross Domestic Product.
Brad Setser argues that the entities might not only be too big too fail, they’re too Chinese and too Russian to fail. Given this huge foreign investment, holding off the collapse of the GSE’s looks like far more than a financial decision. It’s a foreign policy imperative. Hank Paulson, who has spent a lot of time reaching out to China, is no doubt keenly aware of this.
Setser argues that this foreign policy imperative means that there is no way bondholders in the GSEs won’t be made whole. These are, in effect, Treasuries. After the jump, see Setser’s chart illustrating the international holdings of agency debt.
Too Chinese (and Russian) to fail? [Follow The Money]
This all makes my head spin.
me chinese
me play joke
me put pee in your coke.
roundeyes loaded me up with crappy mortgages!
how much more lo mein can these chinese chinks make with $400b of agency debt?
and how many more illegals can they ship over?
and how many poison toys can they send over?
and how many more of our jobs they are going to take?
screw these asians – we’ve got to get our country back to its roots.
we’ve got to get our country “back to its roots”
Which is puritans and doing sheep…
I think it is a fair trade off – the Chinese give us poison toys, toxic pet food and we give them dubious securities.
Welcome to globalization and the new round of World Trade.
___
Anybody watching Bernanke’s testimony?? Yawn!!
@10:19 – I meant our WASPy, roots. Before the immigrants flooded us.
WASPs ‘heart’ sheep.
John, what about a hat tip or a link to our credit crunch porn :
http://www.lacrisepourlesnuls.com
In making them whole, we further crush the USD, making their holdings worth less.
So they either take the hit on reduced bond prices or on collapsing FX. Theoretically, the impact of the FX slide should be greater, as it will reflect all such bailouts, and not just these two. And the FX slide will also make their exports less competitive, causing them to close more factories (rumor has it tens of thousands have closed in China this year).
Take the 5-10% haircut on the bonds, and consider yourselves lucky…
lemmerdur is a smart man. or woman.
either way, it’s smart.
More like “La crise dans le cul”.
–CS
Thanks, John, for pointing out some of the foreign repurcussions if Fannie Mae and Freddie Mac remain insolvent. This is a big part of the deal over this issue and a part that isn’t talked about publicly.
Why else is Paulson willing to consider risking such huge sums for a bail-out? Because our international standing is at stake. What an all around bad moment for the U.S.
And what did I say?
Stockholders can go screw themselves. They’ll print the money to redeem the bonds before they’ll let them default. Too bad I didn’t mention the Chinese/Russian connection – you have no reason to believe it but I was thinking it – but still, right on the beam.
M
“poison toys, toxic pet food”
for those of you ignorant:Actualy the real people who poisoned Americans are Americans themselves.Those companies that exported toxic materials are owned by Americans.Chinese have said they’ve glad if American companies are to get out of China bec. they can easily be replaced