A week of havoc, then hope

Cure-all or Band-Aid?

That's what investors will try to decide in the coming days as they digest the details of the massive mortgage rescue plan unveiled Friday by federal officials.

The immediate verdict, at least judging by the reaction on Wall Street, was that Treasury Secretary Henry M. Paulson Jr. and his cohorts had delivered a masterstroke. The Dow Jones industrial average surged 368.75 points, adding to the 410-point gain it notched Thursday as news of the government plan leaked out.

Under the proposal, the government would purchase hundreds of billions of dollars of bad debt from troubled banks and take the unprecedented step of insuring individual investors against losses in money-market mutual funds.

The government hopes these moves will restore confidence to participants in global credit markets, freeing up lending to consumers and businesses that have had trouble getting loans during the current crisis.

But the lack of specifics has some market watchers wondering whether the party may have started a bit prematurely.

"Investors are overreacting," said Peter Boockvar, equity strategist at New York brokerage house Miller Tabak & Co. in New York. "They're just assuming that everything will be OK, but we haven't seen the details yet."

For instance, Boockvar said, what if banks and other institutions balk at selling their soured debt securities to the government at cut-rate prices? The issue is thorny because the value of many exotic mortgage-related securities is hard to gauge. Even if the government succeeds in calming the credit markets, the health of the U.S. economy remains a concern for the stock market.

"Let's assume we've cleared the decks and the credit market issues are solved," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "We're still faced with an economy where corporate profits are going to struggle to meet mid-single-digit growth over the next four quarters."

And the housing market -- the root cause of the current credit crisis -- continues to struggle with rising foreclosures, falling home prices and high inventories of unsold houses.

At least for a day, however, the clouds over Wall Street parted and buyers were in control. The Dow industrials' 3.4% gain to 11,388.44 gave the blue-chip average its biggest two-day percentage gain since October 2002 and its biggest back-to-back point gains since March 2000.