>Fannie Mae Breakdown

>I have to be honest, when I heard about the imminent bankruptcy of Fannie Mae and Freddie Mac, I passed this off as just another financial crisis, similar to the mortgage crisis, and the bailout of some banks recently. Boy, was I wrong.

When I hear economists say that they would rather see the United Kingdom or Japan go bankrupt, my ears perk up.

NPR broadcast this story on September 9th, 2008.

  • FM/FM hold $5 trillion in debt. Not only is that the largest debt held by any company, it is larger than any countries debt. Except for the United State, that is.

That is $5,000,000,000,000! I can’t imagine that much money. Another way to think about this, perhaps, is that this value is about 1/3rd of the GDP of the United States.

Could anyone possibly imagine what would happen to the global economy should either of the two agencies go belly-up? Domenico Siniscalco, former finance minister of Italy, has an idea. He stated that the “bankruptcy of Fannie Mae and Freddie Mac would have meant Armageddon…Meltdown of…the global financial system.” Yike !!!

The solvency of Fannie Mae and Freddie Mac presents an issue to the global financial markets. Is the U.S. a stable financial market? The U.S. was once pretty bullet-proof; now, global financial markets are not so sure. As Peter Costello, a finance minister from Australia put it, the U.S. is exporting financial instability.

India has smiled somewhat over this. After taking considerable criticism for years for managing “backward” and “closed” financial affairs, India is now viewed as being a “cautious manager” of its economy.

Maybe, we, the U.S. should take a step back and examine just how cautious we really are.

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