and the plan is designed to dispose those toxic assets off banksâ€™ balance sheets.
The program will provide purchasing power of almost $500 billion that can expand up to $1 trillion, in which the government and private investors will start purchasing legacy loans and legacy securities with the help of the Federal Reserve Bank and the FDIC which will provide guarantees and oversight the program.
One issue in which the Treasury has been struggling with was the mechanism of pricing for such assets, yet the program left that to investors who will be auctioning those securities and accordingly they will be sold to the highest bidder, meanwhile the government will finance those purchases with a debt to equity ratio of up to 6/1.
Investors indeed applauded the plan especially as there was no room for mistakes this time, because when U.S. Treasury Secretary Timothy Geithner announced the initial hints for the plan, investors deemed those details to be rather vague and mysterious, but yesterday Geithner set the records straight for investors.
Investors accordingly were hopeful and their confidence rose which led them to invest in higher yielding assets including stocks, which sent the U.S. equity indices in a strong rally that saw the Dow Jones Industrial Average index rising 6.84%, while the S&P 500 index rose almost 7 percent and the NASDAQ Composite index also rose 6.76%.
Meanwhile stocks in Asia also followed the lead of U.S. stocks as they rose as well, this increased risk appetite that led investors to invest in higher yielding assets and accordingly the Yen and the U.S. dollar fell against major currencies.
As for todayâ€™s fundamentals Germany will start the economic releases with the manufacturing purchasing managers index for the month of March, the index is expected to continue contracting, the index is expected to fall to 32.0 from 32.1, while the services PMI is expected to drop in Germany to 41.0 from 41.3.
The euro zone will also release their PMI index today, the manufacturing PMI is expected to remain unchanged at 33.5, while the services PMI is expected to slightly drop to 39.1 from the prior estimate reported back in February of 39.2. The euro zone will also release their current account balance for the month of January.
As for Europeâ€™s second largest economy, the U.K. will release today their consumer price index for the month of February; CPI is expected to rise 0.3 percent following the prior drop reported back in January of 0.7%, while CPI is expected to have risen by an annualized 2.6 percent down from the prior rise of 3.0 percent. Core CPI is expected to remain unchanged at 1.3 percent.
The U.K. will also release their retail price index for the month of February, RPI is expected to drop by 0.1% following the prior drop of 1.3% reported back in February, while RPI is expected to drop by an annualized 0.7% following the prior rise of 0.1%, also RPI that excludes mortgage installment payment is expected to rise by an annualized 1.9%% down from the prior rise of 2.4%.
As for the U.S. economy, the only highlight today is testimonies from U.S. Treasury Secretary Timothy Geithner and the Federal Reserve Bank Chairman Ben Bernanke before the House Financial Services Committee over AIG, as Mainstream Americans were furious after AIG announcing bounses of $165 million for its executives after being provided with three bailouts from the government.
AIG, once the worldâ€™s largest insurer was acquired by the government back in Black September as the credit crunch revealed one of its most devastating chapters, as the government took control of Fannie Mae, Freddie Mac, and AIG, before leaving Lehman Brothers to face its destiny which indeed proved to be failureâ€¦
Ever since then the markets went mad as investors shun their risky assets and headed for safety measures, meanwhile central banks in a combined efforts with the governments have been trying to provide a solution in which the Public-Private Investment Program was the latest but not necessarily the last!!!