My big question on the Geithner Plan for Pres. Obama is this:
Can the banks who today hold these toxic assets also participate in the auction as bidders/buyers?
If so, then assume they bid $100 and receive as the seller the same $100, why would they care about the $7.50 they put in as equity? Getting an immediate 92.5 cents on the dollar, courtesy of Uncle Sam, for assets currently valued at 30 cents on the dollar is an incredible opportunity.
After having received 92.5 cents on the dollar, why would a bank care what subsequently happens to the value? Later traders/buyers will not have access to the 92.5% government non-recourse loans, so the value after the auction will surely tank. But the banks won't care because they will have already sold the waste in the auction and gotten 92.5 cents on the dollar (less the 7.5% they might put in to buy waste from their fellow banks).
If the banks can play in the auction then this plan amounts to nothing more than an immediate Government bailout for these banks and Wall Streeters to the tune of 92 cents on the dollar. They sell and buy each others, or worse yet their own, waste using 92 cents from Uncle Sam. They are only out 7.5% for whatever assets they buy, and they receive 100% of the auction price for whatever they sell.