Joe Nocera, in a column that's pretty high on the Geithner plan, makes a great point: The key part of the plan may not be selling the "toxic" mortgage-backed securities, but selling all the bad mortgages the banks are still carrying. (The first are pools of loans that have been sliced up and repackaged; the second are actual loans.) He writes:
There are plenty of investors who would be happy to take bundles of, say, commercial real estate loans off the hands of the banks and work them out — but only if they can get them for a price that makes sense. Good money can be made both for the investors and for the government, which, lest we forget, will get 50 percent of the upside. But the banks are going to be extremely reluctant to give up those loans, because by doing so, they would have to acknowledge the losses on their books.
That is why it is so important that the F.D.I.C. is managing this program. However much banks may not want to sell into the program (and for all the government’s insistence that the program is voluntary) it will be nearly impossible for a bank to resist the entreaties of its primary regulator. All indications are that Ms. Bair and her crew are going to use the program as a tool to force the banks to come clean on the health of their loans.
Once this process gets under way, does it mean that banks are likely to need additional capital? You bet it does. There are going to be new holes in balance sheets, and they’ll need to be plugged. But in the best of all possible worlds (a guy can dream, can’t he?), private capital will come in because investors will finally see that those bad assets no longer constitute a bottomless pit. Even if that assumption turns out to be overly optimistic, it will be far more politically palatable for the government to recapitalize the banks — or close them down, or even take them over, if need be — knowing that we finally can value the bad assets. You really can’t nationalize a bank without being able to make an ironclad case, to the public, that it is hopelessly insolvent. The P.P.I.P. will help make such a case.
Nocera says the mortgage-backed securities have largely been marked down to semi-realistic prices. It's the actual loans that banks are still valuing at delusional levels. The Geithner plan would essentially force them to come clean on their loans, too, paving the way for nationalization--or at least bona fide recapitalization (though you'd still have to get the money from Congress...).