Just yesterday President Obama said the bank assets/derivatives are worthless. Today according to Geithner’s plan government is going to buy them with private investors with government buying about 95% of any assets that bank want to sell.

Here’s is an example from marketwatch.com

How the plan would work
The Treasury’s ambitious program would revolve around five steps:
1. A bank decides what pool of assets they would like to sell.
2. After determining that it would be willing to leverage the pool, the FDIC will conduct an auction. For instance, mortgages with $100 face value would be bought for $84.
3. Of the $84, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
4. The Treasury would then provide 50% of the equity financing. In this example, Treasury would invest $6 and the private investor would contribute the other $6.
5. The private investor would manage the servicing of the asset pool using managers approved by the FDIC.

ABC news video about Geithner’s plan. Good questions by Diane Sawyer.

I liked Mish’s quote here.

Somehow, Geithner (and Obama by implication) believes that igniting a bidding war between hedge funds and private equity over a bag of cow manure will inspire confidence that there’s gold in the bag. Such insanity cannot possibly work, which means it won’t.

Here is the link to PAUL KRUGMAN’s column in NYtimes.