Sunday, September 14, 2008

Foreigners, not the US Mortgage Market, drove the Fannie - Freddie Bailout

In an interview with The Washington Times, Council on Foreign Relations Geo-Economics Fellow Brad Setser said of the federal bailout of the Fannie-and-Freddie debt: “I suspect this is the first case where foreign central banks [ie China, Japan, Europe, the Middle East and Russia] exercised their leverage as creditors to push the U.S. government to make a policy decision that protected their interests.”

The problem is that the U.S. government has established what could be a costly and ill-advised precedent - the bailout. First it was The Bear Stearns Cos., now it’s Fannie Mae and Freddie Mac, and tomorrow it could be Lehman Brothers Holdings Inc.

FreedomWorks, a conservative non-profit organization that’s based in Washington, characterized the Fannie Mae/Freddie Mac bailout as a deal by politicians that’s nothing more than a transfer of “possibly hundreds of billions of U.S. tax dollars to sophisticated investors and governments overseas.”

[Excerpt of an article by William Patalon III, Money Morning]

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