If you wondered who the Fannie bail out was for, wonder no longer…

by Morgan on August 5, 2008

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I’ve said numerous times that the main reason for bailing out the mortgage giants Fannie Mae and Freddie Mac was not for the US homeowner but for the Chinese who have bought a huge portion of our mortgage backed debt.  By letting the GSEs go under the US government would have defaulted on a huge promise to its number one pimp partner who has helped fuel this massive expansion in credit and debt.

Bloomberg now has an article confirming that there were high-level talks between the US Treasury Secretary Hank Paulson, Fannie Mae CEO Mudd and Asian investors who hold a bulk of this debt.  When you think of the homeowner bail out, remember, $300 billion was earmarked for American citizens.  The rest of the near $2 trillion will go to securing our partners cash flow in to our country.

From Bloomberg:

Asian investors were among the most important groups to soothe because central banks, financial institutions and funds in the region own $800 billion of Fannie Mae and Freddie Mac’s $5.2 trillion in debt, according to data compiled by the Treasury. U.S. officials were concerned that sales from the region would push lending rates higher, said the people, who declined to be named because the discussions were confidential.

At the height of the panic, Mudd dispatched two lieutenants to Asia to meet with debt investors. He declined to say which countries were visited, or the names of the officials.

`Extremely Worrisome’

Freddie and Fannie rely on foreign institutions. Investors and central banks outside the U.S. own about $1.3 trillion of Fannie and Freddie’s corporate and mortgage bonds, according to the Treasury. Chinese institutions are the biggest holders in Asia. European investors own $300 billion of the securities.

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