"There's Nothing Sacrosanct About U.S. AAA Rating" Mark Gilbert - Bloomberg

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http://www.bloomberg.com/apps/news?pid=20601039&sid=arWnu82MRqQk&refer=home

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Sensible, sane people are starting to question whether the U.S. can hang on to its AAA credit rating. The prospect of an extra $5 trillion or thereabouts leaking onto the U.S. government's tab from Fannie Mae and Freddie Mac has spooked investors. As the man almost said, a trillion here and a trillion there, and pretty soon you are talking about real money.

``Where does the government stop?'' asked economist Dennis Gartman in his Gartman Letter research report this week. ``Shall all farmers be bailed out? Shall General Motors and Ford, who are seemingly heading toward oblivion, be bailed out? Where does this mission creep end and how much shall it cost, and how badly shall the dollar be battered in the process?''

Fannie and Freddie shares have declined by about 80 percent this year. The slump in the two mortgage agencies has sparked a new catchphrase -- ``Too Chinese to Fail'' -- based on the $974 billion of U.S. agency debt held by foreign investors, a fivefold increase since 2003.

Financial markets and U.S. legislators alike have derided U.S. Treasury Secretary Henry Paulson's plan to bail out the mortgage lenders. One of the two key elements is illogical, while the second is plain outrageous.

Just last week, Fannie Mae said it ``has access to ample sources of liquidity, including access to the debt markets.'' Freddie Mac said it was ``adequately capitalized, highly liquid and an essential part of the nation's housing system.'' Either they are being economical with the truth, or the decision to let them borrow from the Federal Reserve's discount facility is window-dressing that serves no real purpose.

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