The Wall Street Journal on The Geithner Asset Play

The Geithner Asset Play -At least it's an attempt to clean up bank balance sheets - leads off today's Wall Street Journal's editorial page.

The best news about the new Treasury bad bank asset purchase plan is that Secretary Timothy Geithner has finally settled on a strategy. The uncertainty was getting almost as toxic as those securities. Now all Mr. Geithner has to do is find private investors willing to "partner" with the feds (Congress!) to bid for those rotten assets, coax the banks to sell them at a loss, and hope that the economy doesn't keep falling lest taxpayers lose big on their new loan guarantees.

The Journal sums up the program this way:

In simplest terms, Treasury is using loan guarantees and $100 billion in remaining TARP money to create a more liquid market for dodgy financial assets. These include those infamous mortgage securities, as well as various loans that may be nonperforming. The idea is to create new buyers for those assets, perhaps leading to higher prices than now exist in a illiquid market, and thus help banks gradually clean up their balance sheets.

What's not clear is how to carry out the plan. First, how to attract private investors, "who will have to accept Uncle Sam as a 50-50 business partner." Even if Mr. Geithner is good on his word that compensation limits will not be imposed on investors, "what happens if their asset purchases pay off in big profits?" Will a jealous Congress swoop in for a bigger bite of the pie.

Although the market responded with a roar, the devil will be in the details.

Read the full editorial here.

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