Effect uncertain

Overall, the government's announcement has been hailed by the Wall Street as a positive measure.

For those financial giants around the world such as Citigroup,Merrill Lynch and UBS that have huge investment in US mortgage market, the move should be interpreted as good news.

As a result of the government's intervention, the cost of borrowing for Fannie Mae and Freddie Mac should decline, because the government will be insuring their debts. And because the government is backing the companies, they will continue to buy and sell home loans.

Some analysts, however, have doubted the move's effect.

Given the enormity of housing's decline in the United States where prices have seen a fall of about 20 percent from their peak in 2006 and the rise in the supply of homes for sale boosted by building boom and pessimism on house appreciation, some said the federal takeover was not enough to halt the decline in home prices in a short time.

They also said the success of the move depends partly on whether it could draw capital from both domestic and foreign sources.

As the US government is already witnessing a mounting fiscal deficit and the country as a whole has a current account deficit, a commitment of the government balance sheet must be supported by other capital inflows.

Only when such capitals are crowded in, the market can be stabilized and the prospect for a US economic recession can be eased to some extent.

Also as the plan failed to address the question of whether the companies will be nationalized, privatized or kept as government-sponsored enterprises, the companies' long-term prospects remain unclear and investors' confidence would be unlikely to be fully restored simply with the takeover.

(Xinhua News Agency September 9, 2008)