China’s buying binge focused on Mae, Mac

China, which recently became the American government’s biggest creditor, was bulking up on risky Fannie Mae and Freddie Mac debt and U.S. equities from mid-2007 to mid-2008 as the U.S. stock market reached record highs, a recent Treasury Department report confirms.

Then the financial crisis reached a fever pitch, sending equities plunging and forcing a government takeover of Fannie and Freddie.

By David Dickson
The Washington Times

After being burned on Wall Street and nearly scorched by Fannie and Freddie, China has significantly increased its appetite for low-risk Treasuries – just as the federal budget deficit approaches a record $1.8 trillion this year.

The report shows that China’s June 2008 portfolio of U.S. securities included more long-term debt purchased from U.S. government agencies like Fannie Mae and Freddie Mac than long-term Treasury securities.

At the time Fannie and Freddie imploded, there was no explicit guarantee that the full faith and credit of the U.S. government would back the debt. But after taking over the two mortgage-financing giants, and at the behest of China, then-Treasury Secretary Henry M. Paulson Jr. effectively declared the U.S. government would stand behind the agencies’ debts.

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