HW daily email subscribers learned about this last week, thanks to our most important sources on the Street, but today the rest of the market caught onto the Treasury’s move to set up an entity to take over banks’ bad debt; think the Resolution Trust Corp. redux, for those with a history in mortgage banking. Our sources have suggested that Treasury officials have been quietly canvassing Capitol Hill with the idea for about a week now; early discussions surrounding the idea were allegedly met with skepticism after key lawmakers felt they’d been “taken for a ride” on the Fannie Mae (FNM) and Freddie Mac (FRE) bailout authority granted to Treasury, but gained further steam with the turmoil in the markets observed this week. CNBC reported on the progression of the planning effort around a large-scale federal intervention on Thursday, sending stocks soaring. The Down Jones Industrial Average soared to 11,019.69, up 410 points, as a result — with nearly all of the gains coming in the last half hour of trading (which also proves that CNBC’s Charlie Gasparino, who broke the story, is one of the most powerful men on Earth). CNBC reported that Treasury secretary Henry Paulson is set to brief House speaker Nancy Pelosi today on the plan, and said that the Bush administration “wants to make sure Congress is behind the idea before it moves ahead on the plan,” citing an unnamed source. “This will bring real trust back into the market,” Donald Marron, chairman of Lightyear Capital, told the news channel. “It would free up real, spendable capital in these organizations.” News of progress in Treasury’s proposal comes on the heels of an op-ed published earlier this week in the Wall Street Journal which called on lawmakers to resurrect the RTC. The op-ed was authored by Nicholas Brady, former Treasury secretary; Eugene Ludwig, former U.S. comptroller of the currency; and Paul Volcker, former Fed chairman from 1979-1987. “Until there is a new mechanism in place to remove this decaying tissue from the system, the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions,” their opinion piece said. “This contraction will undercut the financial system, and with it, the broader economy that so far has held up reasonably well.” Disclosure: The author held no relevant positions when this story was published; indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.