Markman: A desperate but necessary bailout

Jon Markman’s recent article summarizes the Fannie Mae/Freddie Mac bailout as ‘it’s an expensive ploy to keep the sovereign wealth funds and central banks of China, Kuwait and Singapore from foreclosing on their Fannie Mae and Freddie Mac debt and plunging the U.S. economy into chaos.

Now that Paulson has made his play, Americans are exposed to incredible danger. If that sounds like hyperbole, do the math:

Of the $4.7 trillion in U.S. debt already in private hands through last week, $2.4 trillion, more than half, was held by foreign investors. The Paulson plan to take over Fannie and Freddie adds an additional $5.4 trillion to U.S. debt, of which $1.4 trillion is owned by foreigners. Thus Paulson has committed to doubling U.S. debt and increased foreign exposure by around 50%.

This is plainly a troublesome matter on its face and may affect the country’s overall sovereign credit rating. Now add to this exposure the likelihood of a sharp rise in demand for funds from the Federal Deposit Insurance Corp. and increased demands from the Federal Home Loan Bank system — and consider that the U.S. faces slowing tax revenues from falling incomes amid swelling joblessness and recession — and you begin to understand the size of the risk Paulson is taking in our behalf.’

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