Thursday, August 28, 2008

China Threatens to Raze the House of Cards

Via Bloomberg:

Freddie, Fannie Failure Could Be World `Catastrophe,' Yu Says

"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' Yu said in e-mailed answers to questions yesterday. "If it is not the end of the world, it is the end of the current international financial system.''

"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. Yu is "influential'' among government officials and investors and has discussed economic issues with Premier Wen Jiabao this year.

And from this morning's Financial Times:

Bank of China flees Fannie-Freddie

Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June. The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities. Asian investors, in particular, have become net sellers of agency debt, said analysts. However after a sharp drop in their market value last week, Fannie and Freddie have made a strong recovery after successful short-term debt sales. Fannie was 13.5% higher on Thursday and Freddie was up 12%. Bank of China’s disclosure on its holdings of Fannie and Freddie securities came as the bank reported a 15% increase in Q2 profit.

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