Good news, for a change

A few weeks ago, the Obama administration and its supporters were downplaying the effect that the president's decisions had on a sagging stock market. We countered by saying it was obvious the market didn't like his agenda of tax hikes, reductions in charitable deductions and an emphasis on fighting global warming. Markets tend to react to current events. The Bush administration can't be blamed forever.

Monday proved our point.

We doubt many in the Obama administration today would doubt that the nearly 500-point surge in the Dow had at least something to do with the administration's announced plan to begin cleaning up toxic bank assets with a public-private investment program. Certainly, other factors were involved. News that home sales were on the rise helped. So did a cautiously optimistic attitude among investors that things may have bottomed out two weeks ago and that an over-sold market was ripe for the taking. But the administration's plan was the main catalyst for such a huge surge.

That's because this was the first substantive announcement that took aim at the heart of the recession — the trillions of dollars in bad mortgage debt that had been chopped up, securitized and sold to banks worldwide. Despite enormous expenditures by Congress and both the Bush and Obama administrations that were meant to stimulate or bail out one thing or another, those assets remain as a drag on lines of credit and overall confidence in the banking sector.

The plan, outlined by Treasury Secretary Timothy Geithner in a Wall Street Journal op-ed, seems remarkably sound, given the administration's early penchant for government-led solutions. It would involve the private sector, allowing markets to set the value of assets and requiring investors to share both risks and profits with taxpayers. "This," Geithner wrote, "requires those in the private sector to remember that government assistance is a privilege, not a right."

To those of us concerned that government bailouts would encourage risky behavior, those are words of comfort. We only hope they are true.

Economists seemed genuinely encouraged by Monday's rally, noting that they see fundamental strengths at work. The housing-sector surge comes despite a continued decline in home prices, which is not necessarily a bad thing. Lower home prices may squeeze people who bought at a high price and now feel locked in, but it will allow many more people, including first-time buyers, to get good deals.

The biggest fear now is that the trillions the government is giving away in stimulus money will stymie this rebound as government debt eats into gross domestic product and as inflationary pressures mount.