Read the whole article.

Now to the substance. The Treasury has been using the formula that it
will buy assets at "fair market prices". As we have noted, there is
simply huge amounts of cash ready to bottom fish in housing-related
assets (we saw an estimate of $400 billion a couple of months ago). The
issue is not lack of willing buyers; it's that the prospective sellers
are not willing to accept prices that reflect the weak and
deteriorating prospects for housing. Meredith Whitney, the Oppenheimer
bank analyst who has made the most accurate earnings and writedown
calls of her peer group, has noted how the housing market price decline
assumptions used by major banks fall short of where the market is
likely to bottom, given traditional price to income ratios and
expectations reflected in housing futures prices.

In addition
to the factors that Whitney (and others) have cited, the duration of
the 1988-1992 US housing bear market and major financial crises
suggests that that a peak-to-trough decline of 35-40% is realistic
(obviously, this average masks substantial variation across markets and
housing types). We are thus only a bit more than halfway through, as
measured by the fall in prices.

Yet as we discussed, the plan
makes no sense unless the Orwellian "fair market prices" means "above
market prices." The point is not to free up illiquid assets. Illiquid
assets (private equity, even the now derided CDOs were never intended
to be traded, but pose no problem if they do not need to be marked at a
large loss and/or the institution is not at risk of a run).
Confirmation of our view came from a reader by e-mail:

I worked at [Wall Street firm you've heard of], but now I handle
financial services for [a Congressman], and I was on the conference
call that Paulson, Bernanke and the House Democratic Leadership held
for all the members yesterday afternoon. It's supposed to be members
only, but there's no way to enforce that if it's a conference call, and
you may have already heard from other staff who were listening in.

Anyway,
I wanted to let you know that, behind closed doors, Paulson describes
the plan differently. He explicitly says that it will buy assets at
above market prices (although he still claims that they are
undervalued) because the holders won't sell at market prices. Anna
Eshoo pressed him on how the government can compel the holders to sell,
and he basically dodged the question. I think that's because he didn't
want to admit that the government would just keep offering more and
more.