Dow Soars as Investors Back Bad Asset Plan

Dow gains 500 pts on government strategy to buy bank debt, rise in home sales.

March 23, 2009— -- Bank stocks soared on Wall Street today as investors bet the Treasury Department's plan to help buy bad bank debt will put the nation's beleaguered banks on more solid financial footing.

The Dow Jones industrial average gained 500 points, marking the fifth biggest one-day point gain in history and signaling a strong endorsement of the Obama administration's move to help the nation's ailing banks take $1 trillion in bad assets off their books.

The rally came after Treasury Secretary Timothy Geithner announced the details of the Public-Private Investment Program, which seeks to entice private investors with government incentives to buy the so-called toxic assets from the banks' books -- an effort to thaw the credit freeze and make it easier for people to get loans.

While the Wall Street reaction can be read in part as a vote of confidence in the Obama administration's plan, experts cautioned not to see it as a silver bullet.

ABC News asked 27 of the nation's largest banks who have received TARP funds whether they will use the plan to sell their toxic mortgage assets. They were largely non-committal: 10 banks responded with no comment.

Wells Fargo said it is "premature to comment." Bank of America told ABC News it "supports the concept," but is "studying the details."

Morgan Stanley said it expects the plan to have a "positive impact on the credit markets."

The head of one potential buyer of the so-called toxic assets, the giant bond fund PIMCO, told ABC News that private investors could make substantial profits through the plan.

"I think an investor can earn double digits on these types of assets," said Bill Gross, co-CEO of PIMCO. "It's a win from the standpoint of the taxpayers that will be participating alongside."

But most potential buyers were more tentative. The Private Equity Council, a group that represents 13 of the largest private investment firms, said in a statement: "We look forward to exploring" whether the plan "can help us."

Economists Concerned Obama Plan Not Bold Enough

Some economists told ABC News that today's plan may not be bold enough to cleanse a banking system weighed down by more than just bad mortgages.

"Consumers are going to have problems, businesses are going to have problems -- states potentially," said Kenneth Rogoff, an economist at Harvard University. "So we're going to be left with a bill. We're going to have done this bailout and we're still not going to be left with healthy banks."

The program is far from a cure-all. Unemployment is still rising and credit is still hard to come by. Even after the day's big rally on Wall Street, the S&P 500 is still 47 percent below its October 2007 high.

"I look at this today, not so much as the silver bullet that ends this crisis, but another thing on top of several things of late to put on the good pile," said James Paulsen, chief investment strategist at Wells Capital Management.

News today that home sales exceeded expectations, rising 5 percent in February, combined with word last week that mortgage rates are falling, left optimists saying that Washington's medicine is starting to produce signs of recovery.

"We are beginning to see some sunlight breaking through into what was a lot of darkness until now," said Bernard Baumohl, chief global economist at the Economic Outlook Group.

Many economists believe it could be several months before the plan's impact can be assessed.

ABC News' Charles Herman, Zunaira Zaki and Dan Arnall contributed to this report.