Investors may be scared away by congresses actions over the past week, but the three major elements of Geithner's plan seem sensible.  

1. Provide a securitization facility backed by the FED to get toxic assets off the books of the banks.  This is very similar to the Resolution Trust Corporation approach from the late 80s except that we'd rather see a separate entity manage this that is beholden to the FED and Treasury.  Maybe that's how the Public Private Investment Program will be set up.  Details to come.   In any case, it has a successful historical precedent in concept.  This should get bad assets off of bank's books.  Mark-to-market accounting (which we actually support in not-so-thinly traded markets) requires a lot of collateral calls when bank assets are marked down in the downward spiral we're in.  The banks going to the markets now for money to post collateral is super expensive.  Breaking this cycle will be critical to getting the financial system healthy and lending again.  After all BANKS WANT TO LEND, that's how they make money.  Right now they are so scared they can't shit straight.  They are hoarding cash like the average person...and that's actually fine by us.  It's best to protect the average depositor (grandma's checking account) versus issue another credit card to some joker - especially when the FDIC fund has run dry.    This facility will be an adjunt to TALF which focuses on auto loans, student loans, consumer credit, and small business loans which was launched mid last week.  Banks will lend again if someone buys up all the crap on their books so that they can take their money and start lending again versus holding it as collateral against dubious asset.  In addition, if the securitization market gets moving again (now focused on wiser loans) then credit can get flowing again.  This part of the plan deals with the credit log jam.

2. The plan calls for a broad regulatory framework overhaul.  Interesting.  In addition, there is something critically specific here.  Geithner calls for the ability of Treasury, FDIC, and the FED to take banks into conservatorship (read nationalization or receivership).  This can be done with the authority of the president, FDIC, and FED and would be put under the care of the Treasury.  Hmmm...might have been some method to the stress test madness afterall.  Prior to this, there is no legal mechanism to just take over a bank.  And for all the bankruptcy buffs out there, bankruptcy by law for a financial institution is NOT the same as for an airline or auto maker.  You don't go to chapter 11 or 13 for restructuring.  You go straight to chapter 7 bust (do not pass go).  See Lehman for an example.  This new regulatory framework would provide a legal mechanism for the government to intervene more forcefully (not that that ever stopped Hank Paulson from telling all the bankers to sign a term sheet signing away their lives Godfather style).  But, this creates legal cover for the government to intercede more directly and deal with issues like forcing creditors to get cents on the dollar or employment contracts getting readjusted.  This part of the plan deals with financial system insolvency.

3. Finally, the close cooperation with the FED to essentially inflate our way out of a deflationary spiral will hopefully augment the clearing up of log jams in the credit markets.   You just have so much more money out there that you actually create a perverse incentive not to save because you bet that your dollar is going to be devalued in the future.  That gets people who are on the sidelines to say "what the hell," I guess I'm back in. Of course, that's the FED working independently; but it should compliment Treasury's plans in some ways.

The plan is based on some proven approaches.  However, all the negative press and congress's reactions may doom it.  We fear that the roll-out will be focused on looking at the plan through partisan lenses versus through a comparisan with historically sound approaches.