Close your eyes and picture the day the US defaults on its debt. Or has to print so much currency to compensate for this housing disaster that the value of the dollar goes from laughable to downright disgusting.
The biggest bagholders aren't the banks folks. Nope, they're Fannie and Freddie. And because of their implied government guarantee, after all loans melt down and not just subprime and Alt-A, that means, drumroll please, that the ultimate housing crash bagholder is, are you ready for it? Are you ready? The ultimate bagholder is...
From the reform hearings on Fannie and Freddie:
The housing GSEs are among the largest borrowers in the world. A comparison I like to make is when you add Fannie’s and Freddie’s outstanding debt of almost $800 billion each, with the FHLBanks’ debt outstanding of $900 billion, and Fannie’s and Freddie’s net guaranteed MBS of $2.9 trillion, it comes to $5.4 trillion. That is bigger than the $4.9 trillion publicly held debt of the U.S.
Like other financial institutions, the housing GSEs face a full range of risks, including market risk, credit risk, and operational risk -- only on a much larger and more concentrated scale than other financial institutions.
Fannie Mae, Freddie Mac and some of the FHLBanks have each experienced serious difficulties handling those risks over the years. Current remediation efforts will help reduce operational risks, in particular, but all three risks will continue into the future.