Will the dramatic move by the US government help the beleaguered housing market on this side of the Atlantic? It just might, says Jim Dee

After months of uncertainty, the White House has placed mortgage giants Fannie Mae and Freddie Mac under government “conservatorship”, ensuring that the foundering mortgage underwriting giants will live to see another day beneath Washington’s protective wings.

Leftists slammed the move as proof positive of the hypocritical nature of the world’s foremost capitalist bastion, and the Bush administration's willingness to dole out mountains of corporate welfare at a time when it is still touting bootstraps-free market solutions for the poor people at home and abroad.

Defenders insist that the Fannie-Freddie bail out shows how decisive and energetically robust America’s government can be when major economic pillars are in peril.

This, defenders say, proves that free markets maintain the flexibility needed to weather the worst of storms.

Whatever the truth, there’s no doubt that the unprecedented intervention to head off the collapse of financial entities deemed too big to fail will have major repercussions at home and abroad.

As evidenced by the sharp 300 point surge in the Dow Jones Industrial average on Monday, many on Wall Street were happy that the federal government had brought some stability to the mortgage market.

The move also helped strengthen the dollar against the pound and the euro.

The US will probably see lower mortgage rates in the near future, but that’s unlikely to trigger a turnaround in a property market still declining in the US — it is undergoing the most severe slide since the 1930s.

And, with share prices of both Fannie and Freddie tanking in the wake of the bail-out, it’s likely that stockholders in both companies will be hit with billions of dollars worth of losses.

Tens of billions of dollars of costs related to the takeover scheme — which won’t be completed until a new administration takes power in Washington next year — will ultimately be picked up by US taxpayers.

And that isn't welcome news for an already severely sluggish American economy.

However, the US government’s intervention is good news for foreign investors in Fannie and Freddie, because Washington has signalled that it will act as guarantor of their debts.

And, given the staggering amount foreign investment in Fannie and Freddie, it's easy to see how their total collapse could have sent an economic tsunami of devastating proportions around the globe.

According to the latest US Treasury figures (released in 2007), private and governmental investment from Asia amounted to $800bn worth of securities, with China accounting for $376bn, and Japan $228bn.

European countries — again, via central and private banks — are also heavily invested. Russia holds about $75bn of Fannie and Freddie securities, while countries like Luxemburg and Belgium hold $39bn and $33bn respectively. British investors hold about $28bn of securities in the nearly doomed duo.

So what does all this mean for Northern Ireland, which has seen its fair share of declining house values and the biting of the credit crunch in recent months?

In the short term, UK banks and building societies — most of which are tied to the US mortgage market via mortgage-backed bonds from Fannie and Freddie — may be more willing to lend money for mortgages, now that the US government is effectively safeguarding their investments in Fannie and Freddie.

And — theoretically, at least — that could put downward pressure on interest rates, and eventually help reverse the current housing slump.