Take the current global fascination with the fall of Fannie Mae and Freddie Mac. Most people outside of America were unfamiliar with the names up until a month or so ago. Now the financial pages continue to pore over the possibilities of them both failing totally.
But now we are starting to see what lies beneath as reported in Bloomberg.
And it is really interesting to find out who is the most exposed. Most of the papers talk about the "investors" as if they are all mums and dads who have invested their superannuation. It turns out that the people holding most of the paper are actually Chinese banks.
China's $376 billion of long-term U.S. agency debt is
mostly in Fannie and Freddie assets, according to James
McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd.
in Hong Kong. The Chinese government probably holds the bulk of
that amount, according to McCormack.
I can imagine the quandary that the decision makers in Washington must be in. Either they let Fannie and Freddie fall and mightily piss of the Chinese, or they save it and continue to delay and increase the ultimate impact of the train wreck that is the US economy. Industrial & Commercial Bank of China yesterday reported a $2.7 billion holding. Bank of China Ltd. may have $20 billion, according to CLSA Ltd., the Hong Kong-based investment banking arm of France's Credit Agricole SA. CLSA puts the exposure of the six biggest Chinese banks at $30 billion.
``The seriousness of such failures could be beyond the stretch of people's imagination,'' said Yu, a professor at the Institute of World Economics & Politics at the Chinese Academy of Social Sciences in Beijing. He didn't explain why he held that view.
You would think it would be an easy choice.
