In 2008 Chinese opinion was alarmed to discover that their prized portfolio of dollar assets contained not just actual Treasurys but GSE debt, issued to finance the expansion of American mortgage lending. As in Russia, public opinion in China was indignant. Why was poor China financing America’s excess? As a sign of its impatience, Beijing allowed its spokesmen to make dramatic and unusually frank statements. If the United States allowed the GSE to fail it would be a “catastrophe,” China let it be known.
