China and Japan, the biggest buyers of Freddie Mac and Fannie Mae bonds, on Monday praised Washington for rescuing the ailing mortgage giants, but investors said the bailout had not ended global credit market misery.
China and Japan, the biggest and the second-biggest holders of the Fannie and Freddie bonds, welcomed the bailout.
On Monday the bonds they were effectively as safe as U.S. government debt, but bond dealers said none had changed hands during morning trade in London.
U.S. stocks futures and Asian and European share markets soared after the news of the takeover that could become the costliest U.S. bailout ever. UBS and Mizuho Financial, two casualties of the year-long credit crisis, jumped 10 percent and 11 percent respectively, leading rallies among banks in Europe and Asia.
According to U.S. Treasury data, Japan is the second-biggest holder of U.S. agency debt with $229 billion, after China with $376 billion as of mid-2007.
U.S. Treasury Secretary Henry Paulson said in an interview with U.S. radio broadcast on Monday that the plan had been structured in a way to protect U.S. taxpayers.
By rushing to the rescue of institutions that own or guarantee almost half of the $12 trillion in U.S. home mortgage debt, Washington has removed one source of anxiety that has plagued markets and helped push Japan, Europe and United States toward recession.
But investors and analysts were quick to point out that a risk of collapse of the lenders and a U.S. housing market meltdown were not the only threats looming for the world economy.
Paulson had hatched a plan in early July to shore up the struggling firms with a promise of fresh loans and a government injection of capital if either company was pushed to the brink of collapse.
Fannie Mae and Freddie Mac were so large that "a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Paulson said.
But talks on an aid package ended abruptly in the past few days and policymakers decided to seize the firms, industry sources with knowledge of the events said.
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Comment: Could it be that we, the US Taxpayers, will carry the burden to keep the Japanese and Chinese bankers a float without any doubt to Congressional and Federal Reserve incompetence, after all China and Japan are funding the war in Iraq?
I wonder how things would have gone in Beijing during the Olympics if the world knew Chinese banks were going to lose billions in the US stock market?
OK, return to your normal viewing and begin your masturbatory dreams of Sarah Palin.
Cross posted at One Oar in the Water