So Freddie and Fannie got what “the market” wanted? $5.3tr divided by 300m US citizens is about $17,600 each for every man woman and child. I bet “the market” is drinking Cristal in Manhattan now…stuffing $100 bills into lap dancers g-strings and slapping each others backs at such coup.
Hey big spender! So nice of the government to spend your money to help its Wall Street buddies. Now…lets see if the housing market improves in the next few months.
In order for that to happen, the once implicit government guarantee (of GSEs) to foreign bond holders has to entice the large investors in Fannie and Freddie debt (mainly the central banks of China and Japan) to start investing again in US mortgage backed securities to unfreeze the mortgage market.
There was always a kind of unwritten rule with Fannie and Freddie that they were not allowed to fail…and this made sense. They are the defacto brokers of US wholesale mortgages.
Still, this implicit guarantee didn’t stop China and Japan from drastically scaling back their activities in the US mortgage market a year ago. Now that the tax payer owns them outright, and the implicit guarantee has become explicit, will this make any difference to Fannie and Freddie’s largest investors?
I can’t see why it should. Nothing much has changed from the point of view of Japan and China. They always assumed that their bond investments in Fannie and Freddie were safe and now that assumption has been cast in stone on the back of US taxpayers…whats the big difference? Answers on a postcard please.
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