>>>You’ll have to explain how China’s financial loss is harmful to the US for me to agree with you re .....economic sabotage.
Because agency debt has operated under a wink and a nod near guarantee from the federal government, the US might never be able to borrow from overseas creditors ever again... well, like Russia, we could borrow after a decade or two. At the same time, there would/might be a rush by all creditors holding all Treasury debt to unload it. Or at least sell off significant parts.
As the Chinese also hold a fair amount of US Treasury debt, they would think this Treasury debt might also be of “bad quality” and want to sell it. They might see this “welching” on Fanny/Freddie debt to be an act of economic war (they can be paranoid). Other central banks would get gittery. Then while the Chinese are nationalizing US interests in China, the US government would go belly up as it could not borrow money at stratospheric rates to pay their bloated payrolls. This means all other Treasury debt is worthless, and thus all related FDIC guarantees on momma’s bank account are worthless too.
Hope this helps.
I believe the federal government has only one option: keep Fanny/Freddie operating... on an infinite asset/equity ratio.
Unlike the case of other bankruptcies where the equity and debt holders should have been taken down to zero, the “wink and nod” guarantee by the federal government has caused us taxpayers a catastrophe.
Have you seen the numbers on their off-balance sheet guarantees? It’s quite large. Read this week’s Barron’s.
Apparently, the two combined operations have a 24:1 leverage ratio (a bank should have 10:1 I believe, but most don’t). When you throw in their off-balance sheet guarantees, the leverage ratio goes to 68:1. Currently these two companies OWN or GUARANTEE 45 percent of all mortgages in the US. This amounts to $1.7 trillion. So if only 1/4 of this is bad, Bush could kick out the illegals, take the savings from the states, and break even.
CitiBank is closing all of their Northern Nevada offices/branches. IndyMac is going bankrupt after they too learned about the risks of writing fraudulent mortgages. This thievery has been going on for decades and nobody ever goes to jail for it. Why should they clean up their act when the thieves can have their attornies write a new Bill to shove through the Congress with the threat that the entire financial system will collapse.
What you’re talking about is integrity and there isn’t a politician in the world who has any of it. They don’t know how to operate with it as a mandate.
When the doors to the World Bank are closed permanently that’s when the financial rules will be regarded as rules again. Until then, a wink and a nod will work fine, just like you said.