The Bankwatch

Tracking the consumer evolution of financial services

Fannie and Freddie double the US national debt

The combined debt load of the two mortgage holding companies is over $5 trillion, and equivalent to the entire US national debt.  To date the Fannie/ Freddie debt has been ‘off balance sheet’ and therefore not included in the national debt. 


They [Fannie Mae and Freddie Mac] hold or guarantee some $5.2 trillion of the nation’s $12 trillion of mortgages, backed by the thinnest wafer of capital, meaning their collapse would imperil the already paralysed American housing market. Yet as Joshua Rosner, an analyst at Graham Fisher, a research firm, points out, nationalising them, a stark choice for the government since their shares tumbled last week, would “result in a doubling of the federal deficit, a further collapse of the dollar and unthinkable implications for the Treasury’s cost of funding in the debt markets.”

Given the actoins on Sunday to back the beleagured companies, the US is a hair away from having to include the debt in their national debt.  This has implications for he value of the US currency, and therefore the inflation, and other economic impacts to Americans.  Economists, feel free to chip in with the impact and how that might play out. 

There will be all kinds of debate about this mortgage debt being secured, therefore not the same as traditional government debt which is issued on the name only of the government.  Nonetheless its no small leap to realise that the US government is now on the hook until the underlying asset value is clarified.

Written by Colin Henderson

July 14, 2008 at 21:38

Posted in subprime

Tagged with ,

3 Responses

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  1. If the Fed and the Treasury are going to supercede the free market, and everything big is too big to fail, then short America, ignore the day to day gyrations, and pick up your profits in 7 years or so. Congress and Bush are utterly impotent failures. Bernanke and Paulson, representing both theoretical and hands on experience, are doing yeoman’s jobs buying time while temporarily selling out the U.S. citizen/taxpayer. They’re hoping that John and Jane Q. Public don’t notice their added burdens, while Ben and Hank bail water in the hope that the ship of state doesn’t capsize and sink before help arrives.

    Oh, and they have no idea what form that help will take, or when or even if it’s coming.


    July 14, 2008 at 22:48

  2. @LooseKannon .. there are certainly good questions that need to be asked about how this mess came about, although I think it predates the current administration, and is more systemic.


    July 14, 2008 at 23:08

  3. […] 15 July 2008 · No Comments UPDATE: to post 14th July […]

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