GSE bailout could lower U.S. credit rating
Thursday, July 10th, 2008
Categorized as: US Credit Rating
According to a report by Standard & Poor’s, quoted in The Fannie and Freddie doomsday scenario in Fortune magazine (see final paragraph):
The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States.
As reported here previously, the rates offered by government-issued inflation-protected securities tend to correlate with the government’s credit rating. A lowered credit rating would lead to higher fixed-rates for TIPS and I bonds because of the higher risk.
Fannie Mae and Freddie Mac stock prices have been cliff diving this week. Many experts suspect the U.S. government will have to intervene to keep the companies afloat. These companies now provide well over 90% of the financing for U.S. mortgage loans; without mortgages housing prices would simply collapse.