Posted by Jen Lynch
By Mark Glassman, SmartMoney
The Treasury's plan to facilitate the removal of up to $1 trillion in toxic assets from bank's holdings triggered a fresh wave of optimism on Wall Street.
Stocks began week sharply higher, as traders cheered the plan and held out hope that it would spur lending and grease the wheels of the economy. Each of the major indexes rose at least 6%. The Dow Jones Industrial Average climbed 497 points to 7775. The Nasdaq picked up 98 at 1555, and the S&P 500 climbed 54 to 822.
Under the Treasury's plan, a new organization called the Public-Private Investment Program would recruit investors to buy up banks' assets, matching their outlays dollar-for-dollar. Auctioning of the assets would be handled by the Federal Deposit Insurance Corp., which would also offer investors guarantees against further losses. Separately, the Federal Reserve would draw $200 billion from the $700 bailout fund already approved by Congress to back up to $1 trillion in loans to private investors looking to buy up the troubled assets.
Treasury Secretary Timothy Geithner disclosed the main pieces of the plan in an opinion piece published Monday in The Wall Street Journal. "We cannot solve this crisis without making it possible for investors to take risks," he wrote. "While this crisis was caused by banks taking too much risk, the danger now is that they will take too little."