Allowing for only minimal losses, the capital of both Fannie Mae and Freddie Mac would be completely wiped out. If they folded they would take down the last remaining lenders in the mortgage market and put in doubt the credit of the United States. They would put in jeopardy a huge portfolio of securities widely held by foreign investors. In the summer of 2008 foreign investors held $800 billion in debt issued by the GSEs. Fannie Mae and Freddie Mac were, as the influential blogger Brad Setser quipped, “too Chinese to fail.”
