Sunday, 24 August 2008

Freddie, Fannie Failure Could Be World `Catastrophe,' Yu Says

A failure of U.S. mortgage finance companies 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 in e-mailed answers to questions yesterday. ``If it is not the end of the world, it is the end of the current international financial system.''

Freddie and Fannie shares touched 20-year lows yesterday on speculation that a government bailout will leave the stocks worthless. Treasury Secretary Henry Paulson won approval from the U.S. Congress last month to pump unlimited amounts of capital into the companies in an emergency.

According to Warren Buffet, Freddie Mac and Fannie May are done. Quote: "The game is over".

However, because there is market manipulation, the stock value of these massive companies might be kept "alive" for a number of months before crashing- they may not fail (although I think this is unlikely since their fundamental business is so destroyed, and their debts so large, that avoiding a failure/government-takeover seems impossible.)

The fall out from such a large failure will be massive- US dollar set to drop, financial compaies around the world to face more write-offs, US job losses, a level of general calamity ...

[Posted at the SpookyWeather blog, August 24th, 2008.]

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