WASHINGTON — The Bush administration rushed to revamp the largest U.S. bailout plan in history Monday, working with executives of the nation's biggest banks to shift and shape new pieces and get desperately needed credit flowing.
Stocks soared around the world in response to dramatic efforts here and overseas, and the possibility of even bolder American action.
Scrambling to catch up with events, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and the bankers were modeling many parts of their revamped program after strong initiatives in Europe, where governments put $2.3 trillion on the line Monday in guarantees and other emergency measures to save banks there.
Elements being considered for the overhauled U.S. program included not only the details for purchasing banks' bad assets, the major feature of the $700 billion bailout bill that sped through Congress, but also direct government purchases of stock in banks, an idea that Paulson surfaced only last week.
Another initiative under consideration is providing government guarantees for the short-term loans banks make to each other, a vital credit avenue that has come under severe stress as fears have mounted over the hundreds of billions of dollars of losses that began with the meltdown of the subprime mortgage market in the United States more than a year ago.
Major stock markets around the world surged higher after last week's market disaster as traders began to hear of Europe's actions and the possibility of further steps in the United States.
On Wall Street, a record 936-point increase in the Dow Jones industrials far surpassed the previous one-day mark of 499 points, set in the waning days of the dot-com boom in 2000.
But the surge came after the staggering losses of the worst week ever, and economists said more rough days can be expected.
World markets rallyEuropean markets rallied following Asia's lead in response to the widespread government initiatives.
"These are tough times for our economies; yet, we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis," President Bush said following a meeting with Italian Premier Silvio Berlusconi at the White House.
Investment experts in Nashville said the stock market was due for a big bounce Monday because many panicky investors had done their selling, and there was nowhere for Wall Street to go but up.
Bruce Bittles, the Nashville-based chief investment strategist for Robert W. Baird & Co., said the 936-point rally had little to do with central bankers' pledge to shore up ailing financial institutions.
"There wasn't really a change in psychology," Bittles said. "It's just the level of fear had gotten to the level where … they had collected all the sellers." Other advisers said the market is likely to hold onto at least some of Monday's gains.
"It won't be until this has passed that we'll know if we saw a low on Friday, but there's a good chance that this is a low," said John Burch, president of Nashville-based Capital Markets Advisors.
"We'll almost certainly see a retest of this low in the next several weeks, but by then, the $700 billion that they're making available through the Federal Reserve should start to show an impact."
Democrats in Congress, while supportive of Paulson's desire to expand the bailout program, complained that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that have now helped push the U.S. financial system to the brink.
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