ASSETS FAIL.

This sort of thing is a bit outside my zone of competence to evaluate, but this paper by Harvard's Joshua Coval and Erik Stafford and Princeton's Jakub Jurek makes a seemingly compelling case that the toxic assets are not currently overvalued. Instead, they're finally being correctly valued. And if that's the case, argue the authors, then Geithner's plan might well make things worse.

Many analysts appear to be looking at large recent price changes and concluding that we must be witnessing distressed pricing and widespread market failure. This conclusion is based on intuition that fails to appreciate the extreme nonlinearity in the risks of credit securities, especially those manufactured by securitization (i.e. CDO tranches). Our analysis suggests that the dramatic recent widening of credit spreads is highly consistent with the decline in the equity market, the increase in its volatility, and an improved investor appreciation of the risks embedded in these securities. From this perspective, policies that attempt to prevent a widespread mark-down in the value of credit-sensitive assets are likely to only delay -- and perhaps even worsen -- the day of reckoning.

They also say that their analysis suggests the banks are insolvent. Full paper here.