This ominous article asserts that the Chinese have had their doubts about agencies since the start of the financial crisis, but long term Doom readers will recall that those doubts, arising from a 7/7 ’08 Lehman research note, were the start of the crisis.
WSJ (2/13 ’11): “Chinese Express Wary Faith in Fannie, Freddie Debt”
BEIJING—China’s government, one of the biggest holders of debt from Fannie Mae and Freddie Mac, voiced confidence that Washington would continue to stand behind the obligations of the U.S. mortgage giants after the Obama administration outlined options for phasing them out.
Geithner has always been excruciatingly careful to limit his unlimited support to Fannie and Freddie themselves and not to their debt. That’s an issue that the current incarnation of Congress – and Rep. Scott Garrett (R-NJ) – will obviously have to address before the GSEs’ long fadeout is accomplished. More importantly, it needs to be dealt with before markets start pushing up agencies yields.