From Naked Capitalism…..

Of the GSEs’ $5.2 trillion in debt (their own corporate bonds plus MBS), $1.3 trillion is in the hands of foreign investors and central banks. The speed with which the powers that be cobbled together a support program was seen in some circles as an admission of the importance of reassuring our friendly overseas credit suppliers.

If that was the motivation, it isn’t working. As we and others noted, spreads on GSE debt have risen to 215 basis points over Treasuries, only a tad shy of the pre-Bear crisis level of 238 basis points. And remember, they have reached this stratospheric levels despite the Paulson rescue package, despite an alphabet soup of new Fed facilities that accept GSE paper as collateral (as the discount window did) now in place (although there were raspberries all around for the bailout bill, due to its failure to make any changes in the operation, management, or policies of the GSEs and its lack of specificity as to triggers and what mechanism would be used).

And the reason? A big factor is that foreign central banks are exiting GSE debt and have pulled back significantly from purchases of new paper. This vote of no confidence appears likely to force the Administration’s hand and lead it to take more concrete measures to prop up Freddie’s and Fannie’s balance sheets. They are not about to risk a spike in mortgage rates and further trouble in the housing markets with elections approaching.