We are writing today from the annual Agora Financial Investment Symposium in Vancouver, British Columbia. Your editors are currently traveling from Europe to Canada and finishing the companion book to I.O.U.S.A., respectively, so today’s missive will be shorter than usual.
The Telegraph warns this morning of a global financial meltdown. Although the IMF has upgraded the world forecast for 2008, they have also said there is a “chance of a global recession.” Hmmm…
The eurozone is sliding into a recession faster than the United States, the British paper continues. The U.S. current fiscal crisis is the push over the edge that the global economy has feared. The dark twins of the mortgage market have foreign investors nervously chewing their fingernails, as one out of 10 American mortgages are, in essence, owned by institutions and governments in other countries.
The Treasury Department reports that as of June of last year, China holds $376 billion in securities issued by Fannie and Freddie, and Japan holds another $228 billion. While these securities aren’t guaranteed by the U.S. government, the New York Times reports, “the housing giants…have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better.”
Unfortunately, the United States now looks like a giant, international credit risk. And although the idea of Congress issuing a “blank check” to bail the mortgage giants out is worrisome to most, in order to keep the foreign investors the U.S. so heavily relies on (somewhat) confident in the country, Congress really has no other choice. Treasury Secretary Hank Paulson said on “Face the Nation” yesterday that he was “very optimistic that we’re going to get what we need from Congress. Congress understands how important these institutions are.”
Yup…and so are our friends in the Far East.
for The Daily Reckoning Australia