Wall Street clean up sets off a huge rally

By SAM FLEMING FOR MAILONLINE
Updated:

Markets soared on both sides of the Atlantic after the Obama administration unveiled the biggest effort to date to cleanse Wall Street of its toxic assets.

Bank shares recorded huge gains after treasury secretary Tim Geithner launched the Public-Private Investment Program - worth up to $1trillion (£688billion).

The leading Wall Street indexes each gained more than 6 per cent, while banks rose by 15 per cent.

Juggling the figures: US treasury secretary Tim Geithner has his hands full at the moment

Juggling the figures: US treasury secretary Tim Geithner has his hands full at the moment

The rises came as the White House said the aim is to remove some of the poison from the balance sheets of America's struggling lenders, sparking a revival in lending.

The PPIP is the latest of a lengthy parade of Bank Aid measures which have thus far failed to stem the downward spiral in the world's biggest economy.

Geithner has been savaged for failing to decisively tackle the rot in the heart of the US banking system, but yesterday's announcement was met with a more enthusiastic response.

The FTSE gained 109 points to 3952.81, while the Dow Jones added 289 points to 7568 in afternoon trading.

The PPIP will be seeded with $75billion to $100billion of funds extracted from last year's illstarred Troubled Asset Relief Program, used to form public-private partnerships which will buy soured assets and loans.

The TARP scheme, launched in the dying days of the Bush administration, never got off the ground - in part because of the difficulty of deciding on a value for troubled assets.

It is hoped Geithner's scheme will get round these problems by involving private investors such as hedge funds in purchases. To underpin confidence, the Federal
Congressional funding Deposit Insurance Corporation will underwrite any debt used to pay for toxic loans.

In addition, pre-selected fund managers will be able to apply for a Federal Reserve loan to buy tainted mortgage-backed securities. Up to $1trillion could be spent under the scheme.

Economist Rob Carnell of ING said: 'The naysayer response will be that this is still too small, and that the scale of the problem is several times larger than that. To which the reasonable response will be that this is a start.'

Analysts said the White House must generate interest from private investors if it is to succeed.

Larry Summers, director of Obama's National Economic Council, said there is already 'considerable investor interest from a number of quarters'.

Most watched Money videos