Investors are diving back into the market this morning on word of a government rescue plan, extending yesterday’s rally in stocks and exchange traded funds (ETFs).

A ban on short-selling within financial institutions, a plan to guarantee money market funds and an agreement to purchase short-term debt obligations have bolstered the stock of some of the nation’s largest banks this morning.

  • Secretary Treasury Henry Paulson said the government has decided to use a Depression-era fund to provide guarantees for U.S. money market mutual funds, some of which “broke the buck” this week. At least temporarily, the funds will be guaranteed against losses up to $50 billion, reports Diana B. Henriques for the New York Times. Money funds held more than $3.4 trillion in investor funds, down $170 billion from a week ago.
  • The Fed also said it would expand emergency lending to allow commercial banks to finance purchases of asset-backed paper from money market funds. It plans to purchase short-term debt obligations issued by Fannie Mae, Freedie Mac and the Federal Home Loan Banks, which offers financing for mortgages, small businesses and farms.
  • A ban on short-selling, which is betting that a stock will fall, was put in place. Short selling has been banned in 799 financial institutions, reports Simon Kennedy for MarketWatch. The action was taken to protect the securities markets, the Securities and Exchange Commission (SEC) said in a statement. The ban will end on Oct. 2. The short financial ETFs are available and trading right now.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.