So Obama wants to give little Geithner more power:

Great, he sounds like a real change guy.

Geithner worked for Kissinger and Associates for three years. He was Under Secretary of the Treasury for International Affairs (1998–2001) under Treasury Secretarie Lawrence Summers. Summers & Geithner worked for the repeal of the Glass Steagall Act.

In March 2008, he arranged the rescue and sale of Bear Stearns in the same year, he played a pivotal role in both the decision to bail out AIG as well as the government decision not to save Lehman Brothers from bankruptcy. Paulson has described Geithner as "a very unusually talented young man who understands government and understands markets."

Robert Kuttner, Huffington Post

"...on the much larger issue, the failure of the entire approach that Treasury Secretary Tim Geithner and White House economic czar Larry Summers are using to rescue the banking system.

It would be hard to find two administrations more different than Bush and Obama. Yet, when it comes to bailing out financial firms, Geithner's approach is a seamless continuation of his predecessor, Hank Paulson's. It makes you wonder who is the permanent government. Perhaps Wall Street?

Even the players are the same Goldman-Citigroup crowd. The well named Neel Kashkari, the Citigroup executive brought in by Paulson to run the TARP program, is still in place. Geithner's top assistant, Mark Patterson, is from Goldman. And most of the concepts are coming from the same Wall Street crew.

So far, the policy has been an abject failure."

Yeah...the crew that has an unequaled record of screwing things up...needs more power.

Scotti beam me up!

I think that is roughly correct. I also think, though I have no idea where I would get the evidence, that that portion of the administration who believes nationalization to be necessary saw this plan as a way to lay groundwork that builds its necessity.

You demonstrate insolvency with a generous stress test, where the generosity is important so nobody plausibly can claim your test is too tough. Then you demonstrate the worthlessness of the assets with this generous public partnership, where the giveaway to potential investors is important so nobody plausibly can claim they are just undervaluing the assets. Et voila, for the really broken institutions you have built a very strong case for receivership.

Some might even think this outcome has been the intention all along. I do not think the principals here are that cynical, but I am. If I were in the administration, I would make sure that things will in fact flow that way if they prove necessary, then sign onto this plan as the best option currently on the table.

I'm coming around to the notion that Obama is easing away from his no nationalizing banks position, if only because of the point in your last paragraph.

Geithner is leveraging the small amount of cash remaining in TARP for this last ditch effort. Everyone knows congress isn't going to give him more money to keep trying the Paulson plan, and they will yank his chain if he and Bernanke try too play Hanky-Panky using other statutory authority. Everyone knows that even given the most optimistic level of participation one trillion dollars addresses at best a quarter of the big banks balance sheet problem. Sure, it's a trillion dollars applied in the least efficient way, but it's a big enough play that they can go to congress and say they really tried to avoid putting banks into receivership.

Obama has nothing to double down with after TARP is spent, he'll be forced to nationalize.

If this is really accurate, we've just seen the most rapid loss of political skill in the modern era. Imagine the Obama machine, able to sell a mixed-race presidential candidate of limited national experience based on a nebulous theme of "change" that meant different things to different people, but unable to provide a reassuring, straightforward explanation of their prudent, stepwise, comprehensive plan to save the economy.

Granted, it might be too complicated even for those great communicators to explain it all to us plebes, but surely they could explain it to left-of-center, skilled economists like Stiglitz or Krugman.

But it's not clear that they're even trying. Makes you wonder just who the important political audience is here, doesn't it?

Ezra: The first condition is arguably being satisfied by the pricing mechanism in the Geithner plan. You'll have the market -- or something people are calling "the market" -- valuing assets.

no, No, NO! A market price can NOT be established when (a) the assets are hand picked by the seller, and screened by the FDIC, and (b) the auction rigged by subsidies, risk sharing, risk bearing, etc. Whatever value is established by fake auctions tells you NOTHING about the value of the remaining unsold assets, which are/will be much larger, and much more impactful on bank solvency.

This is pseudo-market pricing.

Isn't it remarkable that here in March 2009 we know essentially no details (facts) about what the individual and composite banks hold in the way of RBMS (CDOs) and at what FACE value? We know nothing about the CDS (credit 'insurance') played on these assets.

As for the stress tests: they are not stressful. MDs don't do stress tests on the heart by having folks sit and read a book. They put them on a treadmill and keep increasing the speed.

The Fed, SEC, FHA, FDIC, other housing regulators, and Congress can demand and get this info. Why don't they (we) have it? If you guessed that they think we can't handle the truth without running to to bank to withdraw, you'd be correct. That is NOT an excuse for not publishing the data.

Wise farmers don't buy pigs in poke bags.

Your forgot (4): Congressional authorization, not only of the legal means for doing it, but also the APPROPRIATION of the necessary funds. As Suroweicki says (via Sullivan): "I think the costs of nationalization likely outweigh the benefits, and that in any case it would be very difficult for Obama to get Congress to authorize the trillion dollars or more the government would need to take over America’s biggest banks."

I'd bet it would take at least $2 trillion. But the moment that's announced, every terrified counterparty on the planet will add up the total estimate of "legacy assets" out there and do the math, and finally know for sure that they're going to lose at least 50 cents on the dollar, probably closer to 70. It's like quantum physics: all balance sheets right now are in a state of superposition--they're both particle and wave. When we finally shine the light of certainty on them, each unit will be 70% smaller than we thought it was. What will that day do for the global economy? And that day will be followed by about 5 years of "receivership" for at least the biggest entities. What will that do?

OK, here's another sci-fi metaphor: the most brilliant engineers and physicists on the ship are telling us that there's a perfectly stable and navigable wormhole just a light-year away. We can enter it right now, and exit the other side much stronger. It'll just take a lot of fuel, and a fairly long time. And they don't really know what's inside.

Captain Obama and his officers agree that the wormhole is stable, but they believe it is too small for such a large ship, and they fear the likely quantum shear and tachyion storms inside--which they can't get any sensor readings on from outside--could very easily damage the ship so badly it will limp out the other side near death. They believe a different course, if successful, will use less fuel and take less time. But the danger on this course is that the ship could end up getting lost in a no man's land for 10 years or more. (Just ask the Japanese, or the captain of the USS Bozeman.) Captain Obama has decided to chart the second course.