Reduced to bullet points:
* Risks of a really nasty outcome are high.
* "Something" should be done about it.
* Given the current configuration of Congress and the Oval Office, the modified Paulson plan was the best something we're likely to get.
* Assuming Congress and the OO are about to be reconfigured, it should be possible to reconfigure the plan too.
A footnote: Barney Frank says the TARP legislation is deliberately worded to allow the Treasury to buy equity. So equity recaps, which have been proven by economists to more effective than assets purchases and which allow the Treasury some upside, can be done without any new law.
===
Doug - while we must all wait for the technocratic details of the US Treasury approach to managing the TARP program, I would say the objection of a stack of analysts is that there is too little clarity on the mechanism the Treasury has in mind to engineer a recapitalisation, and also a strong liklihood the intervention won't work very well.
I suggested in a prior post and will reiterate that the fallback approach of the FDIC taking control of failing banks and engineering mergers, and the ad hoc approach in Europe is a more satisfactory solution. Institutions with clear cut problems are getting clear cut solutions.
The trouble with TARP is that plenty of US government aid will end up with financial houses that are not that stressed or just are not that central to the problem of bank liquidity and credit availability - basically, the SIVs and hedge funds can just all go down. That's stressful but not catastrophic.
I guess I am working over a debate you had, Doug, with Marvin Gandall so for now I'll leave it there.
Ian