The New York Times has the only information that I’ve seen so far on the imminent Treasury plan to resolve the bank toxic asset conundrum. I’ll reprise it for you and then move on. No sense getting worked up about something that we haven’t seen in detail.

Here’s what they plan to offer on Monday according to the article.

The plan to be announced next week involves three separate approaches. In one, the Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.

In the second, the Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up on a dollar-for-dollar basis with government money.

In the third piece, the Treasury plans to expand lending through the Term Asset-Backed Securities Loan Facility, a joint venture with the Federal Reserve.

The goal of the plan is to leverage the dwindling resources of the Treasury Department’s bailout program with money from private investors to buy up as many of those toxic assets as possible and free the banks to resume more normal lending.

OK, let’s work backwards. The TALF you know about. It sounds like they just intend to expand the asset classes that the Fed will accept. So far the jury is out on how successful this plan will be. A couple deals have been done or are in the works but there is concern about how much follow-on business exists.

The second prong sounds like a variant of the first prong. Asset managers will be hired to presumably purchase assets and the government will match the asset managers investment. This one doesn’t make any sense, particularly when compared to the first prong.

The first contains the meat of the program. The FDIC will partner with investors to buy assets from the banks. It will lend investors up to 85% of the value of the assets they purchase. But it gets better. The remaining 15% of the purchase price will be in the form of an equity investment but the FDIC will put up 80% of that which means that the private investor has to put up 3%. See why prong two makes no sense right now?

Since we don’t know how profits are going to be split, we can’t tell just how sweet a deal this might be for private investors. In fact the more I look at it the more I ask myself why we need private investors for this piece. If the taxpayer is going to take 97% of the risk why not just take it all and be done with it.

There is a lot of talk about leveraging Treasury’s remaining TARP money with private money but the FDIC plan doesn’t have much leverage in it. I know there are political considerations here. It’s a backdoor way to bailout the banks in as much as the cheap financing and government equity opens the door to pay above market prices for the toxic assets but it seems to be mostly smoke and mirrors with a potentially large payoff to private investors who would seem to provide nothing more than political cover.

I must be missing something. Expanding TALF may be worth a try but the other two elements of the plan just don’t compute. It seems to be a lot of financial engineering which may result in the transfer of wealth to the private sector through the assumption of most of the risk by the government. Maybe it solves some political problems but that’s the only benefit I see.

Some months ago, I suggested off the cuff that we try and figure out a way to use the social security trust fund to take these assets off the books of the banks. If indeed the toxic assets have long-term value then swap the bonds that the trust fund currently holds for the assets of the banks and if it works out you might very well either solve or ameliorate the under funding problem with social security. The government could guarantee the trust fund against losses which would arguably place it in no worse a position than currently exists. Here is the link to the post.

So long as we seem committed to unburdening the banks of their toxic assets, it would seem that the best course is for the government to buy them and profit from any upside. The Geithner plan just doesn’t come together.

Tell me what I’m overlooking.