Sunday, August 24, 2008

Freddie and Fannie Failure World Catastrophe, Yu Says

U.S. mortgage finance companies Fannie Mae’s shares closed on Friday at $5, down from almost $70 a year ago. Freddie Mac fell to $2.61, which is down from about $65.

A failure of Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank. “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. “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.

China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets. The Chinese government probably holds the bulk of that amount.


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