Wall Street is celebrating. Dow was up by 497. Many financial stocks are up by more than 16%. The Treasury Department said today that a new public-private partnership could purchase $1 trillion in soured assets from banks, which would allow them to renew lending. Taxpayers will stand to reap gains — alongside investors such as hedge funds and private-equity firms — if the investments prove profitable. That “if” is the real key.

Many in Wall Street believe that Treasury Secretary Mr. Geithner’s plan work out very well and save the banks from further troubles. What is this plan exactly? Most of the major banks in U.S. have toxic assets in their balance sheet. These assets lost value and continue to lose value. That’s why it’s called “toxic”. Typical example is mortgage securities that lost 70% value in the last two years. Banks want to get rid of these assets to spice up their balance sheet. But, no one wants to buy these assets at the value quoted by the banks.

Banks want 60 cents on the dollar for the assets. Private investors believe that these assets are worth only 30 cents on the dollar. Now, the Fed walks in and loan the money to group of investors to buy the toxic assets from the banks for 60 cents on the dollar. Private investors get tax payers’ money to buy the assets. Banks get rid of the toxic assets to clean up their balance sheet. If private investors lose money on this investment, they don’t need to worry, because the Fed is guaranteeing the investments.

Why banks are quoting 60 cents on the dollar for the assets even though the market value is only 30 cents? Because if banks sell at 60 cents on the dollar, there is a good chance that these banks will go bankrupt.

Now, the trillion dollar question is: Can the toxic assets be cleaned by private investors to provide better return for the taxpayers? There is no easy answer. Geithner’s plan can fail miserably if the banks get greedy again after removing bad assets from its books. If private investors are not serious about cleaning up toxic assets because these investors have little to lose, the plan will fail.

This is what great economists like James Galbraith and Paul Krugman are worried about. Both economists called Geithner’s plan as “extremely dangerous”.  Mr. Galbraith urges the Fed to examine the toxic assets (bad loans) of the banks before saving them. He claims that there is a possibility of fraud or misrepresentation on the side of the banks.

At this point, Fed doesn’t have many choices left. Buying toxic assets from bank is one of the options. It’s extremely good for the banks because they can get rid of toxic assets and shine up their balance sheet. Will it be good for American people? There is no clear answer. We can only hope that Geithner’s plan works as planned. If this plan doesn’t work, we will be doomed.

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