Yesterday’s announcement ducked the central question of how to value the toxic assets. It is an issue that confounded Mr Geithner’s predecessor Hank Paulson, who ditched a plan for the government to buy assets directly, instead focusing on direct capital injections for the banks.<\/p>\n
The Treasury said its programme would be “designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital”. The involvement of private-sector money would mean the government was not setting the price, it added. The exact mechanism, though, could take weeks to decide. Joseph Lavorgna, an economist at Deutsche Bank, said: “It is not big enough. There are few details. The administration is trying to buy time and they don’t get the fact that we need to get something yesterday.”<\/p>\n
Tony Crescenzi, an analyst at Miller Tabak & Co, said: “It remains extremely uncertain how the Treasury will entice investors to do something they have been avoiding since the start of the crisis.”<\/p>\n
The dilemma is that pricing the assets too low could make many big banks insolvent, while pricing them above market value means taxpayers handing a no-strings-attached subsidy to lenders.<\/p>\n