jimmysnyder said:
On point one, the only involvement of the gov't is in chartering. I don't really know what that means, but it excludes founding. GSE's are private from their inception. Edit: probably a charter is a document listing the rules with which a company must comply.
What do you mean "excludes founding?" Both Fannie Mae and Freddie Mac began as explicit arms of the government; not GSE's, not private corporations, but actual divisions of the Treasury Department. The granting of Congressional Charter is what changed their status from plain Federal government components into GSE's, which is to say, privately-owned, publicly-chartered corporations. The basic idea is to use private capital to perform a public mission, thus keeping it off the government's balance sheet. The Congressional Charter has a number of implications that make GSE's different from your standard private corporation. In addition to establishing the rules the GSE operates under, it can also *exempt* the GSE from Federal regulations that apply to private corporations (such as, say, reserve requirements for lenders). In this case, there are also rules about the sizes of loans that the GSEs will guarantee. Perhaps more importantly, however, government sponsorship gives the Federal government authority over a GSE that it does not have in the case of a purely private corporation. Just to pick an example out of thin air, the Treasury Secretary can summarily dismiss all of the executives of a GSE, and place it into a government conservatorship, without any consultation with the shareholders, or avenues for appeal. More generally, the rules are up for revision by Congress at any time, and so things like access to low-interest, short-term loans from the Federal Reserve can be introduced on short notice, should political conditions favor them.
As far as the China element goes, it is true that they've bought up tons of shares of Fannie Mae and Freddie Mac as part of the trade/finance relationship that characterizes the China/US bilateral relationship. It is thus in their interest that the GSEs not fail, as this would take a big chunk out of their central bank, with devestating consequences. It is also in the United States' interest that the GSEs not fail, as this would also have devestating consequences for our financial system. This would gravely undermine both economies, and the relationship between them, which nobody wants. It is much better for everyone if Fannie Mae and Freddie Mac are preserved, which will spare both our banking systems a big crunch, and allow China to continue to provide demand for low-return instruments and so sustain America's ability to borrow money cheaply, arrest the yuan/dollar exchange-rate equalization, and so preserve the bilateral trade relationship. So, to suggest that China "ordered" America to do this is preposterous: it's in the vital interests of *both* parties that it be done, and China is nowhere near influential (or ham-fisted) enough to issue such an "order," nor is America stupid enough to shoot itself in the head just to spite China.
