Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies, former Treasury Secretary Henry Paulson said.
Paulson learned of the “disruptive scheme” while attending the Beijing Summer Olympics, according to his new memoir, “On The Brink.”
The Russians made a “top-level approach” to the Chinese “that together they might sell big chunks of their GSE holdings to force the U.S. to use its emergency authorities to prop up these companies,” Paulson said, referring to the acronym for government sponsored entities. The Chinese declined, he said.
“The report was deeply troubling — heavy selling could create a sudden loss of confidence in the GSEs and shake the capital markets,” Paulson wrote. “I waited till I was back home and in a secure environment to inform the president.”
Russia never approached China about dumping U.S. bonds, government spokesman Dmitry Peskov said Friday. “This is not the case.”
The Russian government sold all of its Fannie and Freddie debt in 2008, after holding $65.6 billion of the notes at the start of that year, according to Central Bank data. Fannie and Freddie were seized by regulators on Sept. 6, 2008.
Paulson’s book is scheduled to be released Feb. 1.
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