Geithner to the Rescue

The government's newest plan to prop up the foundering economy, to be formally outlined by Treasury Secretary Timothy Geithner in a speech Monday morning, leads today's business stories. Out is the idea of a "bad bank"; in is a multi-pronged approach that will inject additional capital into the market, incentivize investors to absorb "toxic assets" and expand the reach of government entities, including the Fed, Fannie Mae and Freddie Mac, and the FDIC, according to the Wall Street Journal. "The Treasury secretary is expected to sell the program as a framework to address the financial crisis by attacking its root causes: defaulting loans and rotten assets clogging the books of financial institutions," the paper writes.

In another article, the WSJ takes a closer look at the Obama administration's plan to give the Fed more power, particularly with a $200 billion program that would allow it to "make loans to almost any U.S. firm that is willing to use the government financing to buy securities tied to credit-card, small-business, student and auto loans." Funny thing: The program, titled Term Asset-backed Securities Loan Facility, will rely heavily on hedge funds to get off the ground, a fact that has some at the Fed quaking. Many of the highly leveraged (and highly unregulated) vehicles are "lining up to get in on the Fed program, seeing a chance to make high double-digit-percentage returns with little downside using low-cost loans made on easy terms," according to the Journal. Although nervous, officials "see it as a trade-off in order to get capital to consumers."

Topping the papers, too, is word that Senate Democrats and moderate Republicans have reached a deal on the economic stimulus plan. Days of intense negations and "political theater" ended in a pared-down bill priced at about $780 billion, or $40 billion less than the stimulus bill approved by the House last week, reports the New York Times. It writes: "When debate began this week, the price tag on the Senate version of the stimulus bill was roughly $884 billion, but it grew to more than $900 billion as senators added provisions including tax breaks totaling $30 billion for purchases of homes and cars."

The deal came hours after the Labor Department reported that unemployment rose to 7.6 percent in January as the United States lost 598,000 jobs in the first month of the year, bringing the total jobs lost to 3.57 million since the recession began in December 2007. Reporting from Kuala Lumpur, Bloomberg says that Managing Director of the International Monetary Fund Dominique Strauss-Kahn told bankers from Southeast Asia that "advanced economies are already in a depression and the financial crisis may deepen unless the banking system is fixed." Stimulus packages alone are not enough, he said. Confidence must be restored as well. "Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II," Bloomberg reports.

The dire employment statistics sent stocks soaring yesterday, the WSJ writes, "fueled by expectations that ... the report would hasten congressional approval of the economic stimulus package." The Dow Jones Industrial Average rose 2.7 percent (217.52 points) to 8,280.59. Its intraday high was up more than 3 percent. Blue chips were up 3.5 this week—their best performance in more than a month. "Bank of America led the gains, soaring 27 percent Friday after Chief Executive Ken Lewis said in a television interview that the bank doesn't expect to need more government funding," the paper reports. Still, the bank's stocks ended the week down 6.8 percent.