Geoffrey Newman | July 02, 2008

AT a briefing by Bell Potter's Peter Quinton last week, the veteran investment strategist expressed surprise that he had seen so little in the Australian media about the $US400 billion ($417 billion) housing rescue package currently making its tortuous way through the US Senate.

Under the bill, the federal Government would buy mortgages held by individuals in owner-occupied primary residences that are likely to go into foreclosure, as long as the bank that originally financed the mortgage agreed to write off up to a quarter of the debt.

Quinton sees this as a watershed for a US economy reeling from the sub-prime mortgage crisis, if it gets through intact. He says it should halt foreclosures, stop them adding to the already oversupplied housing market and therefore arrest the decline in house prices, which economists see as the root cause of America's economic woes.

He notes that government intervention to bail out the US financial system would hardly be unprecedented. Governments, he says, will always come to the rescue if the potential damage to the wider economy is serious enough, regardless of the culpability of those who caused the problem.

He cites the Great Depression, the US Savings & Loans crisis and the Swedish and Japanese banking crises as other examples where the authorities stepped in and capitalism took a holiday.

And when governments intervene, the economy and share markets typically recover quickly, he says. It's a reminder to Australian investors that the turning point in our share market could be fast and sharp.