But some critics say that the program never made much sense and that there is no need for it now.
"The program is an absolute failure," said Mark Sunshine, president of Florida-based First Capital. "It is taking something complicated and making it more complicated."
Sunshine, a securities attorney and longtime investment banker, disputed the original idea that no market existed for banks to sell the assets. The complex securities required lengthy due diligence to determine their value. As a result, specialists in distressed assets were offering rock-bottom spot prices to protect themselves from unknown risks.
On closer examination, the bundles of residential mortgages have significant value. The vast majority of mortgages underlying the securities are still performing, even as the real estate sector has tanked. And markets are increasingly trading those securities without any assistance from the Treasury Department as the price spread between buyers and sellers has narrowed.
Even so, senior Treasury officials say it would be a big mistake to back away from the program, because the government committed to it and the expectation has itself helped to restore credit markets in recent months.
"To say the programs are not needed is to ignore the many reasons why we came out with the program in the first place," Sachs said.
Sachs said the effort, known as the Public Private Investment Partnership, was part of a complete package of efforts, including bank "stress tests," direct funding to banks and other measures, to restore health to the banking system.
"They are all interrelated," said Sachs, a former assistant Treasury secretary during the Clinton administration. "When we rolled out the program, we didn't know which one would have the greatest uptake."
But it is still uncertain whether many banks would be willing to sell the assets at depressed prices. Few, if any, have said they want to sell assets.
"We don't have any plans to participate," said Debora Vrana, a spokeswoman at City National Bank, a major Southern California institution that took money from the Treasury Department early in the Troubled Asset Relief Program despite its relatively strong financial condition.
Some critics add that the scaled-back program is now hardly big enough to help banks bolster their capital and provide the lending necessary for a healthy economic expansion.
"It is too small to make a difference," said Simon Johnson, an economist with the MIT Sloan School of Management, adding that the failure of the program to restore banks' health would ultimately slow the economic recovery.
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ralph.vartabedian@latimes.com
