Re: [OPE] industrial capital is shifting to ... and inter-imperialist rivalry

Paul C and others: you should find the following story to be relevant
to this thread. / In solidarity, Jerry
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China frets at U.S. risk after Fannie/Freddie bailout
Mon Sep 8, 2008 10:21am BST

BEIJING (Reuters) - The U.S. Treasury's takeover of Fannie Mae and
Freddie Mac is good news in the short term for China, the biggest
holder of the giant mortgage lenders' debt, but Beijing's huge U.S.
exposure still poses a serious risk, a prominent government
researcher said on Monday.

China owned $376 billion of debt issued by U.S. government agencies,
principally Fannie and Freddie, as of mid-2007.

The seizure of the two firms, prompted by worries over their
shrinking capital, was the latest in a series of emergency steps
taken by U.S. authorities to quell a year-long credit crisis that has
helped push many economies toward recession.

"China has bought a lot of asset-backed securities, and there might
be short-term improvement in price," said He Fan, an economist with
the Chinese Academy of Social Sciences.

But, taking a longer view, he said the bailout posed a problem: if
the Treasury issues new debt to fund the rescue, should China be a
buyer or not?

"For China, whether or not you buy the new treasuries, there will be
losses: if you buy them, you're getting deeper in the hole; if you
don't buy, your existing holdings will lose value," He said.

The Treasury's equity stake could reach $100 billion in each of the
lenders, which own or guarantee almost half of America's $12 trillion
in home loans, but it said the ultimate cost of the rescue plan
depends on how well the companies perform.

He said the takeover was the last resort for the U.S. government,
underlining that the credit crunch was far from over.

"This shows that the risks involved are greater than we thought. As
such, Chinese banks should be cautious and prudent," the researcher
added.

Bank of China said on August 29 it had slashed its exposure to Fannie
and Freddie to $12.67 billion as of August 25 from $17.3 billion at
the end of June.

Vice-Premier Wang Qishan, who is in overall charge of economic and
financial policies, did not comment directly on the two agencies'
woes. But, speaking in the southern city of Xiamen, he said the
credit crisis was having "quite a serious impact".

Although the takeover of the mortgage lenders was a reminder of the
investment risks China is taking, He said the country had little room
to diversify its $1.8 trillion in currency reserves.

Buying non-government dollar bonds would be even riskier, while the
euro is expensive and yields in Japan are low.

"If we don't buy U.S. treasuries and ABS, what else we can buy?" He
said. "China just has no way to avoid the risks. Whatever we do, we
have to bear the losses."

There was a vigorous reaction among Chinese Internet users.

A blogger on www.163.com said "a capitalist country is now acting to
save the market and protect investors", whereas China's government
had sat idly by during a 64 percent plunge in the Shanghai stock
market since last October.

"How can Chinese stock investors not be sad? How can they not lose
confidence?" the post said.

The main Shanghai index shed 2 percent on Monday, touching a fresh 20-
month low, despite a rally elsewhere in Asia triggered by the
takeover of the two firms.

"Hope that China's stock market will get government help like Fannie
Mae and Freddie Mac, not just lip service," a blogger named "Bang Ni"
on sina.com.cn said.

(Reporting by Zhou Xin, Langi Chiang and Eadie Chen; Writing by Alan
Wheatley)

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Received on Thu Sep 11 10:43:32 2008