The Chinese “received a message from the Russians” back in 2008 suggesting a pact to sell Fannie Mae and Freddie Mac securities on the market, which would have nudged down the price of the debt of Fannie and Freddie and also maximized the chaos on Wall Street, a former U.S. official told BBC. It confirms a report that TheBlaze TV’s For the Record first aired back in September 2013.
It’s a bombshell claim that only underscores the mistrust between the U.S. and Russia in a time when tensions are high. BBC’s Robert Peston describes the cynical relationship between the two nations as “deep, rooted in history” and one that shows that the “triumph of capitalism over communism wasn’t the end of the power game between these two nations.”
Talking about the 2008 financial crisis, particularly the issues with Fannie Mae and Freddie Mac, former U.S. Treasury Secretary Hank Paulson explained that the Chinese were the “biggest external investor holding Fannie and Freddie Securities.” Because of this, China was “very, very concerned” when Fannie and Freddie began to melt down.
That’s when the Russians allegedly tried to iron out a pact with the Chinese.
“Here I’m not going to name the senior person, but I was meeting with someone… This person told me that the Chinese had received a message from the Russians which was, ‘Hey let’s join together and sell Fannie and Freddie securities on the market.’ The Chinese weren’t going to do that but again, it just, it just drove home to me how vulnerable I felt until we had put Fannie and Freddie into conservatorship [the rescue plan for them, that was eventually put in place],” Paulson said.
Though Peston reports that the “guerrilla skirmish in markets by the Russians and Chinese didn’t happen,” he says the claim is still “jaw-dropping.”
“For me this is pretty jaw-dropping stuff – the Chinese told Hank Paulson that the Russians were suggesting a joint pact with China to drive down the price of the debt of Fannie and Freddie, and maximize the turmoil on Wall Street – presumably with a view to maximizing the cost of the rescue for Washington and further damaging its financial health,” he writes.
In September, Michael Scheuer — former chief of the CIA’s Osama bin Laden unit — told For The Record that economic warfare is a very real threat to the country.
“Unrestricted warfare of the Chinese is very similar to Osama bin Laden, Al Qaeda and its allies generally,” Scheuer said at the time. “They realize what an enormous military power they’re up against and want to avoid a direct confrontation.”
TheBlaze also reported on the tactic as far back as 2011.
Paulson’s comments were obtained during interviews for the BBC Two documentary “How China Fooled the World.” The comments didn’t make the film.
Read the full BBC report here.
This story has been updated.