Seattle Bubble Forum Archive

Yves over at Naked Capitalism has a very good article on the continued demise of the GSEs. Lots of references/links.

http://www.nakedcapitalism.com/2008/08/ ... inues.html

Here is a salient quote:

"Meanwhile, Freddie's ability to raise capital, and therefore avoid a bailout, is constrained by the uncertainty created by the government's deliberations, according to people familiar with the matter. Investors are unlikely to buy new Freddie shares if they fear the government might mount a rescue that would hurt the value of those shares. Freddie executives are due to meet with Treasury officials Wednesday to discuss the situation and the two sides may explore whether the Treasury could clarify its intentions in a way that would reassure investors."

This is all just a storm in a tea-cup. Anyone buying GSE bonds can sleep soundly, and feel great knowing that they are getting a much higher return than t-bills, yet enjoy the same guarantees. The US government will never allow the GSEs to default on their debt, since the consequences would be disastrous to the financial system (i.e. no money will be available for real-estate securities at all).

Sure, there is a strong likelihood that the government will have to bail-out the GSEs, and wipe out existing shareholder equity as a consequence, but that is already pretty much a given.

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This can't be good.........
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.....Bank of China's portfolio of the companies' debt was reduced by 29 percent in the past two months, by about $3.14 billion to $7.5 billion as of Aug. 25, the Beijing-based bank said in an earnings report. Holdings of mortgage-backed bonds guaranteed by Fannie and Freddie were cut by 22 percent to $5.17 billion, the bank said, without elaborating on the paring.......




Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae (NYSE:FNM) and Freddie Mac by a quarter since the end of June.
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The sale by China's fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie's bonds and guaranteed securities.....
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