Let’s face one very stark fact right now…there are no ideal solutions here. At least this current plan from Geithner allows us to recover at least some of the money, but the banks can’t eat this. So taxpayers are going to have to foot this bill. Sorry, but that’s how this has to go down.

However, Geithner’s plan assumes that these toxic assets aren’t as toxic as many would have you believe. We hear similar things last year about these mortgage backed securities, but nobody was willing to pony up any cash for assets that you knew were going to keep dropping because of the political situation.

Long story short, there’s a potential for some upside from this plan, and that’s not something that’s being reported these days.

More detail from his editorial in WSJ:

The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

This program to address legacy loans and securities is part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets. Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

Angry? You should be. But if you’re blaming Obama and Geithner for coming up with the best “worst” way out of this, then get a grip. There are NO good solutions at this point and maybe we’ll have to nationalize at some point, but that is an unendingly complex situation and I honestly think it’s one of those situations you have to save for a last resort.

Long story short, this won’t happen again (hopefully) because we’ll have new regulations that will reign in the financial sector, but to get out of this current hole the taxpayers are going to have to bear the burden in one way or another. Yes, it’s not fair, but blame the folks who were calling for deregulation, not the current administration.

The full fact sheet is here.