Top of Form
Bottom of Form
By JACK HEALY
Published: March 23, 2009
On Monday, Wall Street gave the government what amounted to a do-over.
When the Obama administration outlined its plans to stabilize the banking system last month, leery investors panned the proposal as being short on substance and sent stock markets into a tailspin. But investors seemed to be warming to the plan's finer points.
Stocks in New York soared in early trading as the government provided more details of its plan to create a public-private partnership to buy up troubled mortgage-related assets from big banks. Shares of banking giants like Bank of America and Citigroup, which could participate, bounded ahead by double digits.
The government hopes that the plan will loosen credit markets and restore normal lending conditions by allowing banks to deleverage billions of dollars in mortgage-related debt sitting on their balance sheets.
The Treasury Department said its plan would generate $500 billion in buying power that could grow to $1 trillion. The plan would be financed using capital from private investors like hedge funds, plus about $75 billion to $100 billion from the $700 billion financial bailout.
The Federal Deposit Insurance Corporation — which guarantees the bank accounts of individuals — would provide most of the financing.
"This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly," the Treasury Department said in a statement detailing the plan.
After more than an hour, the Dow Jones industrial average was 203 points higher while the broader Standard & Poor's 500-stock index zipped up 3.1 percent. All sectors of the market were up, and a 5 percent increase in existing-home sales contributed to a fragile hope that, although the economy was still deteriorating, its worst declines could be over.
Markets in Asia closed higher, and shares were trading higher in Europe, with exchanges in Frankfurt, London and Paris up more than 1 percent as the details of the so-called "legacy asset" plan fueled optimism across the Atlantic.
The Financial Services Roundtable, a leading financial services lobby, threw its weight behind Treasury's plans on Monday morning, saying that the purchase program would keep the troubled assets from bogging down big banks and preventing a recovery in banking and the broader financial system. Many experts say the financial system must recover before the country can claw its way out of the broad and painful recession.
"The partnership between public and private institutions is a great way to help restore liquidity in the market," Steve Bartlett, president of the Financial Services Roundtable, said in a statement. "It is encouraging to see Treasury creating unique ways of stimulating the economy while protecting the taxpayer."
But it remains to be seen how many banks and private investors will participate, and whether Wall Street will stay warm to the plan.
"People are excited that there's a plan, that there's a definitive plan," said Anthony Conroy, head equity trader at BNY ConvergEx Group. "Whenever there's indecision, that breeds volatility."
Stock markets tumbled in mid-February after the Treasury secretary, Timothy F. Geithner, first sketched out the public-private partnership. At the time, investors said the plan lacked details and had raised more questions than it answered. The day's declines in stocks accelerated a broader slide that dragged financial markets to their lowest point in 12 years.
Crude oil futures for May fell slightly to $52 a barrel in New York.
The dollar fell against major European currencies. The euro rose to $1.3645 from $1.3582 late Friday in New York, while the British pound rose to $1.4571 from $1.4465. The dollar fell to 1.1228 Swiss francs from 1.1274. But the United States currency rose to 96.35 yen from 95.95.
Bond prices were nearly unchanged, with the yield on the U.S. 10-year Treasury note at 2.65 percent.
David Jolly and Bettina Wassener contributed reporting.
No comments:
Post a Comment