Internet blogs were full of economists scratching their heads over how to game the plan and come out ahead of the government. Others, like Joseph E. Stiglitz, a Nobel Prize-winning economist, in an interview with Reuters, called the program “very badly flawed” and said it offered “perverse incentives” that amounted “to robbery of the American people.”
Despite such reservations, Goldman Sachs sent out a note to whip up investor interest in the government’s rescue plans, while BlackRock , the big money management firm, was considering the practicalities of starting, of all things, a mutual fund so everyday investors could buy into banks’ toxic assets.
But Bert Ely, a prominent banking consultant, said investors would be cautious because many crucial details were still missing — the size and terms of loans they would receive from the Federal Deposit Insurance Corporation, for example, and the amount of equity they would be allowed to put in, and whether banks would be allowed to walk away if they did not like the price at auction.
“Today we know a lot more than we did yesterday, right?” Mr. Ely said. “I am being facetious!”
Many questioned the auction mechanism to sell toxic assets off from banks’ balance sheets. Price, most experts agree, is the biggest sticking point. The banks want to sell high. Potential investors want to buy low.
Banking executives said that their institutions would not want to unload assets at fire-sale prices, a step that would compel banks to raise large amounts of additional capital. The gap is likely to be the widest for certain loans because of the way banks account for them.
Because of the way they account for the assets on their books, Goldman Sachs and Morgan Stanley — Wall Street giants that converted themselves into banks last year in an effort to ride out the financial storm — may be more willing to sell assets than some commercial banks.
Under accounting rules, banks must carry securities on their books at market prices. Most financial firms have already marked down these assets to prices that might be low enough to lure buyers.
But banks need not carry ordinary loans at market value. Instead, they are allowed to hold them at their higher values until they are repaid. So, for many commercial banks, selling loans now, at distressed prices, would almost certainly lead to large losses. Such losses might raise questions about how some banks will fare in a so-called stress test that federal regulators are in the process of applying to about 20 lenders.
“I don’t see how they are going to get the banks to sell,” said an executive at a large bank, who asked not to be named, given the delicate nature of the Treasury plan. “There are going to be substantial write-downs taken to get them off the books.”
Federal regulators said privately that, in some cases, they might pressure banks to sell.
Mr. Graham, of the American Council of Life Insurers, said pricing was also a crucial issue for insurance companies. Insurance companies have a long time horizon, he said, so they can hold impaired bonds through market downturns.
For all the uncertainties, some big investors like BlackRock and Wilbur L. Ross Jr., a prominent figure in distressed investing, said they were willing to take the plunge. Pension funds also represent a large source of purchasing power, and Ms. Reeser, of the California State Teachers’ Retirement System, viewed the program positively.
The fund, known as Calstrs, had already reduced the part of its portfolio dedicated to stocks by 5 percent, to free up money for this type of purchase, she said.
Institutional investors like insurance companies represent huge blocks of capital, and the success of the public-private investment program will depend in part on how eager they are to get involved as purchasers of the toxic assets.
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“Insurers account for 10 percent of all invested assets in the United States today,” said Robert P. Hartwig, president of the Insurance Information Institute. They would be interested in the program because of its partial government guarantee and their ability to find out what the structured assets consisted of, he said.
“There is some significant upside potential here,” he said. “But you have to balance that against the fact that insurers are very conservative investors.”
The problem, he said, is that companies have to maintain cash flows that match their payout obligations, and it was by no means clear that, in a pinch, they could get their cash out of the toxic assets.
Eric Dash and Michael J. de la Merced contributed reporting.
