While I am still digesting the Geithner plan let me offer a few quick comments.
On the fly...
Until very recently the Treasury was telling people that a bad bank might be in the offing. Suddenly this is off the table. It is unsettling to see this sort of switching so late in the game. The Treasury is still going to and fro on what to do.
Another giant SIV (or Sieve) with public money?
Treasury Secretary Paulson tried to set up a giant SIV to hold assets but that failed based on problems in pricing. As far as I can see that issue is still there.
So now a new public-private entity is being suggested with government seed money in use. It is still not clear how this will work and how much cushion public money will provide and if it will involve any guarantees. I do not begin to understand how this private/public plan will work. Moreover, Fannie Mae and Freddie Mac failed precisely because of their public-private identity crisis.
The plans to bring the Fed in to help with asset-backed lending are good. The stricter stance toward banks that get restrictions on dividends, strictures against M&A, and stock buy-backs and limit compensation are an improvement of sorts. The plan envisions audits to determine that the new funds are well used and stress tests to see what banks are healthy to start with. The plan may work. These are still significant intrusions into the private sector and are not the sort of things to which any good bank will want to subject itself...
Experimental economic medicine: Voodoo Bail-o-nomics
Moreover, there are more mainstream things that could have been done instead of adopting this new public-private entity or fund. Mark to market could have been suspended with increased oversight to stop the cascading pressure on banks. Banks could have been seized and handled in the old fashioned way using the FDIC. Banks could have been nationalized- they are being interfered with as it is. Instead, the Treasury has opted for something that is untested and is even unexplained! This is where Bernanke and Paulson started months ago. It's as though we are back at square one, with a new name and the same problem right there at ground zero - on top a pile of still-toxic assets.