This, from today's Times, is the point I was driving at (maybe unsuccessfully) in my reaction to the Geithner plan yesterday:
Frank Pallotta, a former managing director at Morgan Stanley and a veteran mortgage trader, said the gap was so wide between what banks were valuing their assets and what investors were willing to pay that the government would attract investors to buy only if it provided a subsidy of one form or another.
“Right now, the banks aren’t selling anything,” said Mr. Pallotta, now a consultant to both buyers and sellers of distressed mortgages. “You have Chase thinking that its assets are worth 75 cents on the dollar, and Joe Hedge Fund who thinks they are only worth 45 or 25. There is a huge gap, and the government has to find out if there is some middle point where they can get in.”
I just don't know a way around that problem without the government ponying up a lot of money. And if you're going to pony up a lot of money, you might as well get control of the banks, so you can make it back by selling them off once they're healthy.
--Noam Scheiber