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How not to sell toxic mortgages

The Geithner plan relies on some secrecy to force banks to sell. Congress must back off.

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The spark that began America's economic bonfire still glows: uncertainty over the prices of mortgages held by banks. After months of hand-wringing by two presidents, the first official attempt to price those assets and sell them begins in a few weeks. Will it work? Or, more important, will Congress let it?

Last week's uproar over AIG bonuses shows just how quickly charges of "unfairness" or "greed" can disrupt the government's tight-rope task of using public money and public authority to fix a broken private market.

That kind of harsh spotlight may end up keeping investors from participating in the US Treasury's plan to coax banks into selling their "toxic" mortgages at auction. The plan relies on government guarantees and loans to investors who buy the risky loans – and who also accept the scrutiny that comes with it.

The plan, announced Monday by Treasury Secretary Timothy Geithner, strikes a Goldilocks balance: not too private and not too public. Mr. Geithner decided not to simply take over troubled banks in part to avoid too much scrutiny from Congress in how he would run them.

Still, questions about the Public-Private Investment Program (PPIP) will be raised: Were mortgage securities sold at a "fair" price? Did buyers use any bailout money? Might taxpayers lose money if home prices fall further? And so on.

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