Nemo at Self-Evident has a great post on what he's calling the "Geithner Put", explaining how banks could buy assets with a long-term value of 50 cents on the dollar, pay 84 cents on the dollar for them, hold them to maturity, and still make a healthy 16% profit. Which does help explain why Geithner is convinced that the banks will want to sell their toxic assets under this plan."
…and that would be the FDIC, who was so foolish as to offer 6:1 leverage to purchase assets with a 50% chance of being worthless. But no worries. As long as the FDIC has more expertise in valuing toxic assets than the entire private equity and banking worlds combined, there is no way they could be taken to the cleaners like this. What could possibly go wrong?"
Wait a second. I thought that the FDIC was funded by the banks. They might temporarily borrow money from the government, but they would then raise fees on the banks. Or am I wrong?
Also, the assumptions about who knows what about TAs doesn't square with what I've read about them.
I feel funny defending the plan, but I need a little more info on this math.