Stocks surge in largest one-day gain

Scrambling to catch up with events, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and the bankers were modeling many parts of their revamped program after strong initiatives in Europe, where governments put $2.3 trillion on the line Monday in guarantees and other emergency measures to save banks there.

Elements being considered for the overhauled U.S. program included not only the details for purchasing banks' bad assets -- the major feature of the $700 billion bailout bill that sped through Congress -- but also direct government purchases of stock in banks, an idea that Paulson surfaced only last week.

Another initiative under consideration: providing government guarantees for the short-term loans banks make to each other, a vital credit avenue that has come under severe stress as fears have mounted over the hundreds of billions of dollars of losses that began with the meltdown of the subprime mortgage market in the United States more than a year ago.

Major stock markets around the world surged higher after last week's market disaster as traders began to hear of Europe's actions and the possibility of further steps in the United States.

On Wall Street, a record 936-point increase in the Dow Jones industrials far surpassed the previous one-day mark of 499 points, set in the waning days of the dot-com boom in 2000. But the surge came after the staggering losses of the worst week ever, and economists said more rough days can be expected. European markets rallied following Asia's lead in response to the widespread government initiatives.

"These are tough times for our economies, yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis," President Bush said following a meeting with Italian Premier Silvio Berlusconi at the White House.

Over the weekend, Paulson had called the heads of the five biggest U.S. banks to come to Washington for face-to-face talks about the rescue plan, according to people briefed on the matter.

Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack, Citigroup CEO Vikram Pandit, JPMorgan Chase & Co. CEO Jamie Dimon and Bank of America Corp. CEO Kenneth Lewis were all asked to attend, and there was a possibility that CEOs from some major regional banks would also participate.

Democrats in Congress, while supportive of Paulson's desire to expand the program, complained that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that have now helped push the U.S. financial system to the brink.

The government should purchase only stock in financial firms that agree to cut dividends paid to shareholders, adhere to strict limits on executive compensation and curb their use of exotic investment strategies, Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, said Monday.

Separately, House Republicans and Democrats pushed for fresh action to stimulate the faltering economy.

Democrats scheduled hearings to consider a postelection stimulus package that could cost as much as $150 billion. Republicans called for more tax cuts and energy exploration.

In a campaign speech in Ohio, Democrat Barack Obama proposed a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs. Republican John McCain promised a change in direction from the Bush administration's economic policies.

As for the Europeans, governments there said they were putting $2.3 trillion on the line, based on pledges from Britain, Germany, France, Spain, Austria and Portugal in recent days. To assist the European banks, the Federal Reserve here announced Monday that it was taking actions to assure enough U.S. dollars were available to meet demand.

"The government cannot just leave people on their own to be buffeted about," said British Prime Minister Gordon Brown.

The $700 billion bailout bill was passed by Congress on Oct. 3. In the past 10 days, the administration has hurried to get it implemented even as officials have struggled to nail down the broad outlines of how the package will work.

The administration on Monday announced the selection of a team of interim managers, picked an outside firm to help run the program and selected a prominent New York law firm to draw up guidelines for how the stock purchase program will work. Officials also announced that Bernanke had agreed to serve as chairman of the oversight board Congress mandated.

Assistant Treasury Secretary Neel Kashkari, who was tapped by Paulson to be interim head of the program a week ago, said that the firm of Simpson Thatcher & Bartlett LLP had been chosen to work on guidelines on stock purchases while the investment consultancy of Ennis Knupp & Associates had been picked to help supervise the selection of the program's private asset managers.

"We are moving quickly -- but methodically -- and I am confident we are building the foundation for a strong, decisive and effective program," Kashkari said in a speech to the Institute of International Bankers.

He said seven policy teams had been set up at Treasury to focus on different aspects of the program while five veteran government officials had been chosen as interim heads of key areas including Tom Bloom, currently the chief financial officer at the Office of the Comptroller of the Currency, to serve as the chief financial officer for the rescue program.

Kashkari said that 70 companies had made bids to become the master custodian firm and that a final selection of the winning firm would be announced by Tuesday. More than 100 companies had submitted bids to become one of the five to 10 firms that will operate the program to buy and manage the bad assets from financial firms, and those selections will quickly follow, Kashkari said.