Geithner And The Odd Sovereign Debt Confusion

Treasury Secretary Tim Geithner for some reason found it necessary to explain to a member of Congress that the debt obligations of Fannie Mae (FNM) and Freddie Mac (FRE) were not sovereign obligations of the US government. It was a puzzling comment because there has been no assumption in the market that Fannie and Freddie enjoyed such a vaunted status.

In a letter to Rep. Scott Garrett, Geithner wrote that the government’s  obligations to the two firms “is crucial in helping to stabilize the housing market and the overall economy.” That commitment is obvious as well because a withdrawal of support at this juncture would would almost certainly cause the collapse of Fannie and Freddie which in turn would throw the mortgage markets into turmoil.

Douglas A. McIntyre