Careful Preparation For Fannie/Freddie Takeover

Why was the government so well prepared to bail out Fannie & Freddie, having sought the legislative authority to do so months in advance while proclaiming they had no plans to use those powers?

The Chinese, that’s why. With our trade deficit for so many years, the Chinese own a massive amount of U.S. Government debt instruments. The bonds for Fannie and Freddie were backed by the faith and credit of the U.S. Government. If the U.S. Government lets the values of those bonds go to zero, the Chinese call the rest of their debts and it is game over. The Fannie/Freddie takeover lets the value of Fannie/Freddie stock go to zero
if it wants to, but keeps the value of the bonds under the protection of the U.S. Government.

When Bill Clinton and his team entered the White House, they were shocked to find out how much their priorities and options were limited by the needs of the financial markets. James Carville was heard to say that when he died, he wanted to be reincarnated as the bond market, because he had learned that it was the most powerful force on Earth.