China, perhaps the largest foreign shareholder of Fannie Mae and Freddie Mac's mortgage-backed securities and other debt, welcomed news Sunday of a United States government takeover of the troubled mortgage behemoths.
"We think this is good for Fannie and Freddie because the U.S. government used to be invisibly guaranteeing them, but now it is taking explicit action to positively guarantee them," Wang Zhaowen, spokesman for Bank of China Ltd., told the International Herald Tribune.
Bank of China, the country's third-largest commercial lender by assets, said in late August that after cutting its holdings by 25%, it still owned $7.5 billion in Fannie and Freddie bonds. The bank also held $5.2 billion in mortgage-backed securities guaranteed by the two agencies, the International Herald Tribune reported.
China's three largest commercial banks own more than $18 billion in bonds or mortgage-backed securities from Fannie and Freddie. Earlier reports that the Chinese banks owned significantly more than that were refuted by Chinese officials.
The move by the United States Treasury was even met with praise in, of all places, France. French Finance Minister Christine Lagarde lauded the GSE takeover in an interview with CNBC Europe.
"We need to collectively rethink the moral compass that has driven the financial actors, the financial players, and the financial markets," Lagarde said Monday.
Lagarde will call for greater transparency in bank and financial institution balance sheets Friday, when France plays host to a two-day meeting of the Ecofin group of European Union finance ministers. Ecofin is seeking a coordinated response to the credit crunch and economic slowdown.
In London, MF Global analyst Simon Maughan told CNBC that the move signifies that the U.S. government stands behind the country's housing market, but the action may not actually do much for the economy in the short run.
"It doesn't change the immediate outlook for jobs or any of the macroeconomic fears that people have, but it's a potentially significant cash injection directly into the housing market, which is the number one source of the credit crunch," Maughan said.
What the move may do, as opined on Seeking Alpha by Kathy Lien, Chief Strategist at DailyFX.com, is bolster confidence in the U.S. economy enough to push the value of the dollar higher. And with bad economic news coming from Europe, that should aid investment in the U.S.
Housing markets around Europe are either in or about to enter major downturns. Housing prices in England, Ireland, the Netherlands, and France are all over 20% above where economic fundamentals say they should be, according to the International Monetary Fund.
Banking stocks in the United Kingdom were buoyed by the news from the U.S., some adding as much as 15%, according to the BBC. Germany's Dax-30 index closed up 2.22%, and France's Cac-40 added 3.42% Monday. Japan's Nikkei index closed up 3.4%, while China's Hang Seng index gained 4%. Key indexes in Singapore and Taiwan were also higher
In Australia, news of the bailout pushed the country's benchmark stock index, the S&P/ASX 200, up 190.4 points Monday, the index's largest single-day jump since March 25.
"This is good news on the debt side for anyone who's exposed to Fannie Mae and Freddie Mac's debt-related paper," Ben Zucker, a banking analyst at Macquarie Group, told BusinessDay.
Billionaire investor Warren Buffett told CNBC that the U.S. Treasury did "exactly the right thing."
"It's the best deal and the most sensible deal available now," Buffett said. "Now, you can argue that there should have been some different rules put in decades ago, and it wouldn't have come to this."
Ethan Butterfield is senior business editor at BUILDER magazine.