05/02/2009 05:12 am ET Updated May 25, 2011

Geithner's Plan: Loopholes Galore

It has been a little less than two weeks since Treasury Secretary Timothy F. Geithner unveiled the details of his project to restore banks to financial health. But analysts say hedge funds and investment banks are already looking for ways to exploit the complex web of auctions, public-private partnerships, and government guarantees proposed by Treasury to cleanse banks' books of toxic assets. "It's a highly gameable system," says H. Peyton Young, an Oxford University economist and a senior fellow at the Brookings Institution in Washington. "It's very difficult to write rules that are going to prevent self-dealing behavior."

Geithner's goal: entice investors to buy up the billions of dollars' worth of subprime mortgages, underwater commercial property loans, and other shaky securities that weigh down the banks' books. The partnerships will bid at auction for the dodgy parts of the banks' portfolios, hoping to get a big enough bargain that they can resell the assets later at a profit.

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