Here’s a couple Bloomberg articles on 1) China’s exposure to Fannie Mae and Freddie Mac, and 2) the exposure (preferred shares) of U.S. banks to Fannie and Freddie. 
Freddie, Fannie Failure Could Be World `Catastrophe,’ Yu Says
By Kevin Hamlin
Excerpt: "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China’s central bank.
“If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,” Yu said in e-mailed answers to questions yesterday. “If it is not the end of the world, it is the end of the current international financial system.”
Freddie and Fannie shares touched 20-year lows yesterday on speculation that a government bailout will leave the stocks worthless. Treasury Secretary Henry Paulson won approval from the U.S. Congress last month to pump unlimited amounts of capital into the companies in an emergency.
China’s $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack.
Industrial & Commercial Bank of China yesterday reported a $2.7 billion holding. Bank of China Ltd. may have $20 billion, according to CLSA Ltd., the Hong Kong-based investment banking arm of France’s Credit Agricole SA. CLSA puts the exposure of the six biggest Chinese banks at $30 billion.. .."
Fannie, Freddie Preferreds Batter Sovereign, Midwest 
By Mark Pittman and Shannon D. Harrington
Excerpts: "Midwest Bank Holdings Inc. Chief Investment Officer Don Wiest is wagering U.S. Treasury Secretary Henry Paulson will rescue him from a failing $67 million stake in Fannie Mae and Freddie Mac.
Melrose Park, Illinois-based Midwest and banks from Philadelphia-based Sovereign Bancorp to Frontier Financial Corp. in Everett, Washington, own preferred shares in the beleaguered mortgage-finance companies that have lost more than half their $35 billion value since June 30. Concern that Paulson may step in with a rescue plan that would wipe them out along with common stock investors has sent the securities tumbling.
“I guess we are betting on Paulson,” Wiest, 54, said. “We have to believe that his plan carries the day somehow.”
Midwest, an owner of banks in Illinois, has $67.5 million, or as much as 23 percent of its risk-based capital tied up in Washington-based Fannie and Freddie of McLean, Virginia. Moody’s Investors Service today cut the preferred stock ratings five levels to the lowest investment grade, citing an increased chance that Paulson will rescue the companies, creating “greater risk” that the government-chartered firms may stop paying dividends and adding “uncertainty with regard to how these preferred securities would be treated.”
Small, regional banks may have the most to lose from the stumbles in Fannie and Freddie, and Paulson may risk bank failures unless he protects preferred stockholders, said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York. The impact on the preferred holders “may be an important driver” in Paulson’s decisions, Jersey said…
“Any wipeout of the preferreds could have implications for the capital of the greater financial system and these regional banks that might have reasonably precarious capital situations,” Jersey said. “You don’t want to make that worse if you’re the government.” …
Treasury probably will get preferred shares as part of any bailout, eliminating the value of the common shares and causing “a lot of pain” for preferred shareholders, who will rank behind the government in payments and may have their dividend cut, according to Friedman Billings Ramsey & Co. analyst Paul Miller in Arlington, Virginia. CreditSights Inc. analyst Richard Hofmann in New York said holders should “brace” for a deferral of dividends.
…Fannie Mae’s $7 billion of 8.25 percent perpetual preferred shares have declined 51 percent to $11.29 since June 30. They fell 26 percent this week, with the yield rising to 19 percent from 13.9 percent.
Freddie Mac’s $1.1 billion of 5.57 percent preferred stock has plunged 59 percent to $7.40 since June 30 and 36 percent this week, pushing the yield to 19.5 percent from 12.3 percent…
…Preferred shares rank one level above common stock in the capital structure, which is used to determine the priority of payment in the event of a bankruptcy. Senior debt holders rank first, then the companies’ subordinated bondholders followed by preferreds then equity.
…Banks bought Freddie and Fannie preferred stock because they can be used as capital that regulators require to cushion against losses on loans. Banks also get a tax break on 70 percent of the securities, making them attractive to own, said Midwest’s Wiest.
“These are the only two companies that the regulators have allowed banks to hold in their portfolios,’ Wiest said. “Everybody knows we have them. It seems like every bank has them.”…"
