Tuesday, 24 March 2009

US Treasury unveils plan, markets surge

The US Treasury Dept unveiled its plan to clear banks' toxic assets on Monday. MarketWatch reports:

After months of delay, the Treasury Department detailed a plan Monday to clear out as much as $1 trillion in so-called toxic assets from the financial sector in an effort to strengthen the banks enough to get them to lend again.

The public-private plan would have private investors and the Treasury put in equal amounts of money that would then be backed by a loan guarantee from the Federal Deposit Insurance Corp. to buy loans and mortgage-backed securities from the banks.

Both the taxpayers and the private investors would gain from any profits if the assets eventually gain value. The taxpayer would take most of the downside risk.

Investors seem to like the plan. From Bloomberg:

U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the Obama administration’s plan to rid banks of toxic assets will spur growth and investor Mark Mobius said a new bull market has begun. Treasuries and the dollar fell...

The S&P 500 gained 7.1 percent to 822.92, its biggest increase since Oct. 28. The Dow Jones Industrial Average jumped 497.48 points, or 6.8 percent, to a five-week high of 7,775.86. The MSCI World Index climbed for the ninth time in 10 days, adding 5.4 percent. Twenty-one stocks rose for each that fell on the New York Stock Exchange, the broadest rally since at least July 2004.

Or maybe investors just like any plan. Stock markets had been up even before the details of the plan were released. AFP/CNA reports:

Global stock markets surged Monday as investor optimism grew ahead of the official launch of a 500-billion-US-dollar US government plan to purge banks of toxic assets.

In morning European trade, Frankfurt won 2.04 per cent, London gained 2.02 per cent and Paris soared 1.37 per cent in value.

In Asia, Tokyo leapt 3.39 per cent, nearing a two-month high, and Hong Kong rocketed by 4.78 per cent.

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