Update: Stocks rally on hopes for massive bank bailout
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Update: Numerous reports this afternoon indicate the Bush administration is considering a massive bailout to take bad assets off the books of financial institutions. If this comes to pass, this is the Big One, the mother of all bailouts:
Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.
Let’s be clear here: the main reason for the afternoon rally was Gasparino’s report on CNBC. Here’s how the Wall Street Journal wrote it:
A series of news reports about various forms of government intervention in Wall Street’s latest crisis bolstered investors’ mood. The cable network CNBC reported that Washington is considering formation of a body to accept soured credit bets, something akin to the Resolution Trust Corp., which was a key tool to liquidating holdings of failed savings and loans in the late 1980s and early 1990s.
Earlier, from A.P.: Dow soars 300 on a report that the government may create a repository for banks’ bad debt.
Bloomberg, on the bailout talks fueling the rally:
U.S. Treasury and Federal Reserve officials are considering a ‘permanent’’ plan to address the financial crisis, said Sen. Charles Schumber, who proposed a new agency to pump capital into troubled financial companies. ‘The Federal Reserve and the Treasury are realizing that we need a more comprehensive solution,’’ Schumer, a Democrat who chairs the congressional Joint Economic Committee, told reporters in Washington today. ‘I’ve been talking to them about it.’’ Schumer proposed an agency to inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages to make them more affordable. His remarks indicate momentum is building for some wider plan after the Fed and Treasury’s takeovers of Fannie Mae, Freddie Mac and American International Group Inc. this month.
--Peter Viles
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Photo credit: Associated Press