Tom Edsall helpfully breaks down the Geithner plan into terms he knows very well:
Normally, a poker player has to pay full value for every chip, $1 for a $1 chip, $100 for a $100 chip, and so forth. In the Geithner game, the rules are different. A player acquiring $84 worth of "chips" only puts up $6. Of the remaining $78 which S/he owes, the FDIC would provide - in the form of a nonrecourse loan --- $72, and the US Treasury would put up $6.
Let's say the player has a good night, and makes $200 over and above his/her original $84 "investment" with a total stack of $284 (his/her $200 profit and his/her initial $84 buy-in). Our happy camper then takes $84 off the top out of which s/he pays $72 back to the FDIC, and $6 dollars back to the Treasury. S/he would pocket the original $6 investment.
The remaining $200 would then be split between our talented player and US Treasury, each getting $100, good news for one and all. There are no limits on the upside: if the player has an extraordinary night and makes $10,000, s/he will get $5,000, all from an original investment of $6.
If, however, our player has a terrible night, and loses the initial stake of $84, the downside is just $6. S/he gets to gamble $84 with the worst possible outcome being the loss of $6 -- not a bad deal. If Donald Trump could offer that, his Entertainment Resorts would not have filed for bankruptcy on February 18 of this year.
Edsall also has a level-headed quote from Columbia economist Massimo Morelli, whose views on the plan roughly track mine:
"On average, the taxpayers lose in the sense that the Fed and the Treasury accumulate losses, while banks certainly win....[But] the injection of money into the banks may well be necessary, and if it is, then the Geithner plan is one of the best ways to do it one can think of, because it really could stimulate private actions on multiple sides .... Geithner's plan seems to be aimed to maximize the probability of a significant impact on the lending and investment activities, at the cost of an initial big sacrifice in fairness."
I'd add, as Nouriel Roubini has written, that the plan doesn't make nationalization unnecessary for weak banks. (It may even make the need more glaring.) To my mind, it's just a way to get additional capital to some banks at a time when the alternatives are very difficult politically.
--Noam Scheiber