Monday, July 21, 2008

Funny & Fried

The basic accounting equation goes like:

Assets = Liabilities + Shareholder's Equity

Now for Fanny and Freddie the news paper have it that Liabilities equals USD 5000 billion. So how much will be the assets worth? 10% less than liabilities would result in a loss of USD 500 billion etc.

The NY Times has a detailed list of foreign countries that hold USD 1200 billion of these liabilities. F&F do not only threaten the US financial system, but directly the international ones as well.

Trouble at Fannie Mae and Freddie Mac Stirs Concern Abroad
Asian institutions and investors hold some $800 billion in securities issued by Fannie and Freddie, the bulk of that in China and Japan. China held $376 billion and Japan $228 billion as of June 2007, the most recent country-specific Treasury figures.

In Europe, roughly $39 billion in Fannie and Freddie debt is held in Luxembourg and $33 billion more in Belgium, countries that are home to large investment management firms. Investors in Britain hold $28 billion, and Russian buyers hold $75 billion. Sovereign wealth funds in the Middle East are also believed to be big investors in Fannie and Freddie debt.
So this is also very much about bailing out the US's international creditors.

E.g. Swiss Re has 10 billion in their books. There could be a beautiful chain reaction all over the planet if the US goverment doesn't cover any fallout.

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