How Much of Fannie/Freddie Paper is Held Overseas?
Question: How widely held is Fannie Mae and Freddie Mac paper?
Answer: Very.
Via Monday's NYT:
"For more than a decade, Fannie Mae and Freddie Mac, the housing giants that make the American mortgage market run, have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better.
The marketing plan worked. About one-fifth of securities issued by Fannie, Freddie and a handful of much smaller quasi-governmental agencies, some $1.5 trillion worth, were held by foreign investors at the end of March. One out of 10 American mortgages is, in effect, in the hands of institutions and governments outside the United States.
Now that the two companies are at risk, how their rescue is handled will ultimately test the world’s faith in American markets. It could also influence the level of interest rates and weigh on the strength of the dollar for years to come, analysts say.
“No less than the international perception of the credit quality of the U.S. government is at stake,” said Richard Hofmann, an analyst with CreditSights, an independent research house with offices in London and New York."
So these jackass SIVs that were stretching for higher yield bought GSE paper that went bad -- Are you trying to tell me we are guaranteeing the private sector investments of foreign governments also? Do the words "fuck 'em" mean anything?
When the hell is this going to end? The US taxpayer simply cannot be the guarantor of last resort for every bad bet made by anyone anywhere. Any nation that does that turns their children into indentured servants for generations.
Discuss . . .
>
Source:
Trouble at Fannie and Freddie Stirs Concern Abroad
HEATHER TIMMONS
NYT, July 21, 2008
http://www.nytimes.com/2008/07/21/business/21bank.html
Too Chinese (and Russian) to fail?
Brad Setser
Council on Foreign Relations, July 12th, 2008
http://blogs.cfr.org/setser/2008/07/12/too-chinese-and-russian-to-fail/
Related:
Freddie Mac May Slow Purchases of Mortgages to Preserve Capital
Dawn Kopecki and Jody Shenn
Bloomberg, July 21 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7F3y2TbdVEs&
Paulson Says Fannie-Freddie Plan Critical to Confidence in U.S.
John Brinsley
Bloomberg, July 21 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aoXgLo6UXOvI&
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Comments
It seems that we keep relying on the government more and more. I hope we get through this and learn a few lessons about bubbles, greed and politics.
Posted by: Greg | Jul 20, 2008 9:54:45 PM
Yep, just so.
I'm tapped out. Let Cramer and Kudlow write the check.
Posted by: sysin3 | Jul 20, 2008 10:00:17 PM
If you are a low-tax conservative you don't want to piss off the people who lend America all that money to keep running despite the low taxes. Low-tax conservatives have put us in a very weak position.
Posted by: DJ | Jul 20, 2008 10:01:34 PM
Go Barry!
Give Paulson a squirt gun, NOT a bazooka!
Posted by: Solodoc | Jul 20, 2008 10:04:30 PM
"An Indenture is a legal contract between two parties"
Which implies some sort of consent so technically you can't be born into indentured servitude. They'll just be born into a bad situation. And you think teenagers hate their parents now...
Posted by: KirkH | Jul 20, 2008 10:04:46 PM
Not if those same children turn around and renege on all the obligations.
Let's remember, all of the trillions owed today are perceived to have benefited in large part the Baby Boomers. The following generations will have to pay the bill for their extravagant living, while most likely living in squalor relative to the wonderful lifestyles of those who ran up the tab.
The children will walk away. Who knows, our States may not be so United in a few dacades... and then, the terorrists really will have won, as that is their endgame... only it will be a victory by forfeit.
Posted by: L'Emmerdeur | Jul 20, 2008 10:05:56 PM
Do we compare the current economic malaise and imploding stock market to:
1) 2000-03 Tech Bubble Crash
2) 1970-79 Oil Embargo/Carter Stagflation
3) 1930-39 Great Depression or
4) 1930-39 Wiemar Republic hyperinflation and rise of fascism.
I'm afraid we're about to slip from 2 to 4 being a better comparison for the course of this economy and our government's handling of it.
Posted by: guru | Jul 20, 2008 10:10:04 PM
Wow BR. Agreed
Posted by: rww | Jul 20, 2008 10:10:39 PM
I agree with Solodoc completely. If we give Paulson a bazooka, how do we know he isn't going to turn it on us?
They should just take Fannie and Freddie, bury them in the desert in Nevada (or better yet, in Kazakhstan) and just blow them up like a nuclear test. We'd all be better off in the long run.
Screw the FNM/FRE bondholders. If they wanted safety, they should have bought treasuries. The extra yield was the excess risk. I guess they may have mispriced the risk. Ooops!
Posted by: HCF | Jul 20, 2008 10:15:25 PM
Not too long ago, The Onion had a piece claiming the American investor was demanding a new bubble to invest in. Unfortunately, it was too close to being a real story.
My blood pressure goes up just thinking about what we've created. It's criminal.
Posted by: Florida | Jul 20, 2008 10:16:18 PM
The U.S. has a rich history of pulling economic "fuck yous". I think this would be a great way to keep 'tradition' alive by offering them 10cents on the dollar or nothing - and following through!
Posted by: Darin | Jul 20, 2008 10:21:31 PM
hey, let's not get all high and mighty here.
let's face it, our standard of living and our economy for the last 10-15 years would not have existed without these purchases.
none of them put guns to our head, and forced us to take out HELOCs to go on a QVC shopping spree.
the value of our currency would be close to toilet paper now, if they stopped buying our paper.
the US taxpayer has been on a free ride for years, and now it's time to pay the bill. the very least we can do is to show some common courtesy and at least show an ATTEMPT to pay the money back.
the money that was lost in this whole debacle never belonged to us in the first place. where i'm from, if you make an agreement with someone, you honor it. i don't care if the guarantee was implicit, or explicit. we borrowed their money, promised to pay it back, and said the taxpayer would insure the payments.
that's the agreement.
so just bend over and take it.
Posted by: m3 | Jul 20, 2008 10:23:57 PM
"If you are a low-tax conservative you don't want to piss off the people who lend America all that money to keep running despite the low taxes."
Who knows. Maybe a bloodbath will actually force the GOP tax cut and spenders to realize the value of a balanced budget. Just maybe? Naaaaah.
Posted by: LFC | Jul 20, 2008 10:24:31 PM
The gov't is quick to bailout its rich and powerful friends. But, stresses moral hazard when it comes to the average joe. I think there will be a reckoning.
Posted by: johnnyvee | Jul 20, 2008 10:30:40 PM
...The marketing plan worked.
Good Bye "AAA" rating USA (at least in the eyes of foriegn investors if you back out of your sohistry marketing machine that promised FRE & FNM as good as government of USA!
How pathetic it would be of these self-righteous, self-serving rating agencies to continue to give AAA rating to the good Old USA and be first to scream fire/downgrades at some third-world country at first sign of trouble in growth or some geo-political issue!
BAIL-ME OUT OF MY OWN WORDS and PROMISES!
World is full of two-faced people I guess. Good and Evil; batman and joker -- two sides of the same coin...
Posted by: Nihilism | Jul 20, 2008 10:31:22 PM
The US taxpayer simply cannot be the guarantor of last resort for every bad bet made by anyone anywhere. Any nation that does that turns their children into indentured servants for generations.
one more thing: it wasn't foreigners that turned our kids into indentured servants. that was US.
WE spent our kids into the poor house by spending their future earning streams through this colossal debt binge.
Foreigners simply provided us the means to do so; but make no mistake, this was OUR doing.
Blaming the chinese and japanese for our stupidity is disingenuous at best, and appalling at it's worst.
Posted by: m3 | Jul 20, 2008 10:31:27 PM
am i the only one who thinks we are getting so excited about nothing.
there is something called as inflation.
its as though the us government is going to pay those people for its deficit in real goods....come on it will simply print more dollars and hand it to them.
if they dont support the dollar their export oriented economies will die....if they do they are simply giving goods for free...
its a win win for america...
Posted by: techy | Jul 20, 2008 10:32:35 PM
"its a win win for america..."
And a lose-lose for Americans!
HCF
Posted by: HCF | Jul 20, 2008 10:41:01 PM
Hey M3,
I didn't take any HELOCS nor I ever shopped QVC so I ain't bending over and taking it from anyone.
The the lenders are as responsible as the borrowers. There is such a thing as due diligence and it seems like no one was being diligent except those of us that didn't buy into it. Greed has a price. Time to pay.
Posted by: iz | Jul 20, 2008 10:46:29 PM
I tend to agree with m3...we as a nation borrowed the money and we should pay it back. The ones getting screwed here are the savers who didn't partake in the big party and will have to pay for the tab anyway. I remember a few years ago walking into my local bank branch and them offering me a heloc just for stopping by. I turned it down of course, saying why borrow money I don't need? This is going to be like going to dinner and splitting the tab in half when the other guy ate the most expensive thing on the menu. Savers like me are getting screwed. I'm going to make myself whole and more though, by shorting Nasdaq into a smoldering crater. It is the culmination of my life's work in economic analysis.
Posted by: Steve Barry | Jul 20, 2008 10:48:17 PM
Barry for president?
Posted by: Darin | Jul 20, 2008 11:00:11 PM
Do the words "fuck 'em" mean anything?
Sure, as do the words "buyers strike" and "unpredictable geopolitical ramifications." I share the sentiment, but while we wait for the undeniable long-term benefits of eliminating moral hazard to kick in, we will become a nation of renters, and may just see Treasury yields rise anyway. And given the haircut China and Russia will take, we should expect retailation well beyond the scope of a typical bond market participant. Rock, meet hard place.
Posted by: John F. | Jul 20, 2008 11:14:17 PM
Barry:
"Exorbitant privilege"? Never did any Americans any good anyhow. Who needs it?
Discuss.
Because, that's really what you're saying. Leave the foreigners holding the bag, and future generations of Americans will have to borrow in Euros.
Posted by: Michael Robinson | Jul 20, 2008 11:17:51 PM
Yeah! I am so excited to be a 25 year-old kid whose parents created this mess. Indentured servitude, here I come!
"I pledge allegiance to the flag of the United States of Debt, and to the Republic for which it stands..."
Posted by: Lindsay | Jul 20, 2008 11:21:43 PM
iz-
they did do their due diligence, but it was a fraud. (e.g., AAA ratings, FRE & FNM saying with a wink and a smile that they had gov't backing, while the prospectuses said otherwise, etc.)
FWIW, i have little to no debt either, nor did i go on a QVC consumption binge. but as an american, and supporter of my country & gov't, i have to take the good with the bad.
neither you, I, or barry can selectively choose which parts of the gov't's obligations we can pay for or not. you were part of some great years in this nation's history, so you'll have to be part of the worst too.
you can't cherry pick your obligations & responsibilities. that's how we got into this mess in the first place: a crass disregard for one's obligations to other people, only on a huge, massive scale.
Steve-
i agree with you 100%.
Posted by: m3 | Jul 20, 2008 11:25:12 PM
