While we wait for the details of the new TARP, which probably won't come today, it's worth trying to get a closer look at the ideas being thrown up by the new administration. The issues of executive compensation, transparency regarding the use of TARP funds, requirements on extended credit - all these are a side-show to placate the public. The important bits, those that will make a difference to its success, are elsewhere: 

1. There is the plan to bail-in private investors such as Private Equity firms and hedge funds, by giving them loans and guarantees that will improve market demand for so-called toxic assets. As demand increases the hope is that liquidity comes back to the market. As more of these assets are bought and sold, we will get more clarity about the state of banks' balance sheets, as we can estimate the value of the assets in question.

The problem with this idea is the information gap. The banks are holding mostly assets that they themselves have securitized. So they have better information about their value than outsiders. So if the bank wants to sell you an asset at 50 cents, you can be pretty sure they think its worth less. In which case, you don't want to buy it. And it makes no difference whether the outsider is a government run aggregator bank or a hot shot hedge fund. 

You need to incentivize banks to offload their toxic assets - either by carrots or by sticks. You could give a discount on the price of govt guarantees on bonds to banks that get X% of their toxic assets off their books, say.

2. The only thing that will improve the overall situation and avoid the creation and maintenance of 'zombie' banks, involves 'triage': establishing how sick the different banks are, vouching for the healthy ones, saving those that can be saved, and liquidating the clearly insolvent. The administration has been making noises about this:

Under the category of sticks, private investment managers are closely watching how the Treasury rolls out its "uniform stress test" for grading the health of banks. If the government takes a tougher line with more banks, it could force them to sell off more of their loans and take their lumps sooner rather than later.

This auditing of the banks is the first step in triage. No details so far, and its really the most important part of the whole process of cleaning up the financial sector. This should have been done a long time ago, and the longer we wait, the worse the economy gets.

Why is the government avoiding this seemingly obvious step? The FT's Martin Wolf offers a good account of the possible reasons.