US government plan drives market surge

Finally, US government officials are coming up with a comprehensive plan to stop the financial crisis. Bloomberg reports:

The U.S. government moved to cleanse banks of troubled assets and halt an exodus of investors from money markets in the biggest expansion of federal power over the financial system since the Great Depression.

"We're talking hundreds of billions," Treasury Secretary Henry Paulson said in a press conference. "This needs to be big enough to make a real difference and get to the heart of the problem."

The Treasury is likely to run the program, which would involve auctions where the government buys devalued assets, said House Financial Services Committee Chairman Barney Frank. The plan is designed as a comprehensive approach after a series of individual rescues failed to stem the crisis.

Markets reacted explosively. MarketWatch reports:

U.S. stocks rocketed higher Friday, with the major stock indexes wiping out a week of shattering losses, as Wall Street cheered the government's moves to kick-start credit markets as well as plans to move against short sellers...

The Dow Jones Industrial Average rose 368.75 points to end at 11,388.44, a lapse of 0.3% from a week ago...

On the New York Mercantile Exchange, gold futures plunged the most in more than 25 years, with the spot month closing down $32.30 at $864.70 an ounce. Read Metals Stocks.

The price of oil gained, with crude futures recently up $6.67 to end at $104.55 a barrel. See Futures Movers.

The dollar slipped as investors pondered the possibly negative aspects of the nascent U.S. government plan to take on the toxic assets plaguing the financial sector. See Currencies.

Treasury prices plunged, sending yields on benchmark notes up the most in two decades. Read Bond Report.

Overseas, Chinese stocks in Shanghai and Hong Kong surged more than 9% See Asia Markets.

European shares surged to their best one-day percentage gain ever, with the Pan-European Dow Jones Stoxx 600 climbing 8.3%. Read more.

Emerging-market stocks around the globe also rallied. See Emerging Markets Report.

Steve Waldman at Interfluidity is somewhat less thrilled with the plan though.

Today's big news is the hint of a bail-out to end all bail-outs. I often have mixed feelings about Robert Reich's commentary, but I commend to you his piece today.

There is no question that we are going to spend a lot of public money to address the current crisis... The question we should be asking is not whether or how much, but to whom and for what...

As far as the money is concerned, throw it at infrastructure. Increase worker bargaining power by offering Federally funded retraining sabbaticals for any worker over thirty who decides they want to retool. I'd rather see a new WPA than a new RTC. If it is true that during a debt deflation, the government can spend freely without fear of inflation, let's spend in a way that balances the economy, not in a manner that tries to ratify the imbalances that brought us here in the first place.