Sunday, September 7, 2008

Domestic Taxes Prop Up Foreign SWF Investments in Fannie Mae & Freddie Mac

American taxpayers' rescue of huge mortgage lenders Fannie Mae and Freddie Mac benefits their bondholders. Foreign government central banks and investment companies hold large chunks of both companies. The New York Sun reported:

According to data from the Council on Foreign Relations, central banks own $925 billion in debt in the two companies. China tops the list with $420 billion in Freddie and Fannie debt; Russia and Japan come in second with a combined $407 billion in debt. Others countries that hold the debt include Singapore, Taiwan, and several countries in the Persian Gulf.

The issue is bigger than Fannie and Freddie. The U.S. needs to keep its foreign bankers buying our federal debt. A year ago, foreign countries financed $6 trillion of American IOU's.

As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103).

Citizens should know how rich Middle Eastern sovereign wealth funds will benefit from the rescue. Foreign government coffers already bulge from the high price of commodities, especially oil and gasoline. While American citizens struggle to pay their mortgage, they get saddled with an IOU that makes rich SWF's whole. Middle East oil exporters can sleep soundly knowing their $30 billion of debt holdings in Fannie Mae are now secure. Israeli banks cheered the decision, as well.

They not only get your gas money, but a chunk of your taxes. We can't pour gasoline in the harbor, but we can have a key party! Park that vehicle...