Morning Brief: Monster stock rally

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The Treasury Department plans to invest $250 billion in nine of the largest U.S. banks in its latest bid to stem the financial crisis.

“The efforts are designed to directly benefit the American people by stabilizing the financial system and helping the economy recover,” President George W. Bush said, announcing the plan this morning. “This is an essential short-term measure to ensure the viability of the American banking system.”

As news of the move leaked out yesterday and the Federal Reserve poured cash into the credit markets, U.S. stocks staged a monster rally, rising their fastest in nearly 70 years. European and Asian shares extended the rally for a second day Tuesday.

“What everyone was crying out for was a coordinated central policy response, and that’s what we got,” one currency analyst told Bloomberg, explaining why the cost of borrowing fell.

But are we out of the woods so soon? Former Federal Reserve Chairman Paul Volcker says the U.S. economy is already “in recession.” And Chicago economist Luigi Zingales, in a must-read new Web exclusive for FP, warns that the Treasury’s plan to buy equity stakes in banks is “too little, too late.” Housing prices are still down, and hedge funds loom as the next shoe to drop.

Meanwhile, Western European governments, which announced their own massive banking bailouts this week, still need to figure out how to pay for them.

Decision ’08

The Washington Post‘s Dan Balz says it’s time to ask tough questions of Barack Obama.

Politico‘s Roger Simon wonders who is in charge of John McCain’s increasingly erratic campaign.

Slate‘s Christopher Hitchens endorses Obama.

The race ain’t over yet, the New York Times‘ Adam Nagourney cautions.

Americas

President Bush signed a controversial anti-piracy law.

One industry remains untouched by the downturn: the funeral business.

Paraguayan peasants are at war with Brazil.

Asia

Pakistan’s President Asif Ali Zardari, his economy faltering, seeks aid from China.

Russia agreed to give 67 square miles of its territory back to China.

China is planning to build hydropower dams across Tibet.

Middle East and Africa

Syria established formal diplomatic relations with Lebanon. Also, Lebanese authorities arrested an alleged militant cell with al Qaeda ties.

U.S. and Iraqi officials, failing to agree on troops, are exploring alternative arrangements.

Israel’s Kadima and Labor parties signed a draft agreement to form a new government. Next up? Bringing the ultra-Orthodox Shas on board.

Europe

A Russian spacecraft carrying U.S. millionaire Richard Garriott docked at the International Space Station.

Iceland’s blue-chip stocks collapsed Tuesday, falling 76 percent as the country sought Russian financial assistance.

The financial crisis is British PM Gordon Brown’s time to shine. More here.

Today’s Agenda

Britain’s Man Booker Prize will be announced.

Canada is holding snap elections. Follow the action here.

President Bush signs a bill authorizing the Pentagon budget for 2009.

Following Obama’s lead, McCain unveils new economic proposals in Bluebell, Pennsylvania. Sarah Palin is stumping in Scranton and New York.

Obama and his running mate, Joe Biden, campaign in Ohio.