Suppose that you are a CEO of a Big Bank.  Also suppose that you have a $100 billion of Level 3, mark-to-model assets on your balance sheet. 

You could try out the new PPIP program by selecting $10 billion of your most toxic assets and putting them up for bid.  One of three things will happen:

1. the bid will come in at $10 billion, in which case the only effect of the sale is that you have $10 billion in cash to deposit as reserves with the Fed until you figure out what to do with it (more on this later),

2. the bid will come in at less than $10 billion, say $8 billion as an example, in which case your assets take $2 billion hit, but you have $8 billion in cash reserves instead of $10 billion in level 3 assets. However, if the assets that you sold are similar to the other $90, it has the fairly disastrous effect of converting them from $90 billion of mark-to-model assets to $72 billion of Level 2, mark to observables assets, which means that you have total write down of $20 billion and $8 billion of cash.  This basically forces you to sell all the remaining assets, unless you have chosen wisely and can argue to your auditor that the assets sold
for $8 billion are really very different than the ones you retained. 

3. the bid will come in at more than $10 billion, say $12 billion as an example, in which case your assets increase by $2 billion and you have $12 billion in case reserves.  This is really good, especially if you can argue that the other $90 billion of Level 3 assets, are now really $108 billion of Level 2 assets and you can book a $20 billion increase in assets.  In this case, since you have a firmly established value for the remaining assets, and they are apparently worth more than you had thought, you may or may not want to sell them.

Returning to the problem of what to do with the cash received for the sale of assets, one wonders how this translates into additional lending.  If the intent is to increase bank reserves, then the money received for the sale of assets would go into the bank's Fed account or into US Treasuries. 

It is unclear why you would lend the money to the same deadbeat American consumers and businesses that were the cause of the toxic assets that you just sold. Banks can currently lend to all the 30% down, 740 FICO, conforming prospective home buyers that they can find -- they just can't find very many of them.  A bank would be foolish to lend with less than 30% down in a falling housing market in non-recourse states, where the mortgage is secured only by the value of the property. The same situation applies to auto loans and commercial loans.  The problem is not availability of money; the problem is availability of creditworthy borrowers. 

So I'm not sure how the PPIP is going to solve the problem.