China central bank says Fannie, Freddie takeover is 'positive'x

[Slimprofits]

http://afp.google.com/article/ALeqM5...cBYBOSpkTbsNvA

BEIJING (AFP) — China's central bank sees the US takeover of struggling mortgage giants Fannie Mae and Freddie Mac as "positive", given the billions of dollars of exposure of Chinese banks, state media said Tuesday.

"Chinese investors have a certain amount of exposure" to the companies, central bank governor Zhou Xiaochuan said, according to the China Daily.

"I think they welcome the new policy, but we still need time to have a further study. From my point of view, I think this is positive."

Under the US plan to take over Fannie Mae and Freddie Mac, the two will get government-appointed chief executives and shed their mission of shareholder profit. The Treasury agreed to inject 100 billion dollars in each if needed.

At the end of June, Chinese commercial banks held a total of 24 billion dollars in the mortgage-backed debt of Fannie and Freddie, with Bank of China alone holding over 17 billion dollars, according to the China Daily.

They began reducing their holdings after the US subprime crisis erupted last year.

"Since the US government intervened, the risks for Chinese holders have become marginal," said She Minhua, a Shanghai-based economist, according to the paper.

I watched some coverage on Fox Business, CNN, Foxnews and CNBC today. No one on the networks or those channels talks about the role that the central banks play.

[c1ue]

Re: China central bank says Fannie, Freddie takeover is 'positive'x

As Dr. Michael Hudson has repeatedly noted - the US government has guaranteed agency debt such as Fannie and Freddie.

That's great for already existing debt.

But where will the future debt go?

If the government 'conservatorship' of Fannie and Freddie is the first step into a pipeline --> market to F&F to government, we're going to see massive expansion of government obligations.

If the above doesn't happen, then the last major securitization force for mortgages is frozen, and housing continues to collapse.

I suspect the former will be what happens, but the question then is how quickly the $ is affected.