Does the strategy itself even make sense?
Banks are still lending as much as would be expected from experiences in prior recessions. But that's not enough for our credit-dependent modern economy, so we want them to lend more. Despite having $843 billion in excess reserves, they are unwilling to do so. In an environment with excess consumption and excess investment, that may be a perfectly reasonable decision. Banks want a better risk/reward proposition.
We have done a lot to force the reward prospects down in order to make borrowing more appealing to businesses and consumers. The interest available on mortgages and commercial paper, for example, is far less than that which would clear the market without government intervention.
We've also done a lot to limit risk faced by banks, such as FDIC-guaranteed bonds, loss absorption by the Fed, and implicit guarantees. The new offer to pay full book for grossly mismarked assets, despite some issuance of common as a token gesture, would be a risk reduction significantly larger than those already announced.
This should make the risk/reward ratio look more appealing, but this is just a mirage. It does not reduce the total risk; it only diverts some of the bank's risk to the Treasury and taxpayer. This diversion might be large enough, in which case loans will be made against the banks' better judgment.
The IMF has found recapitalization of this sort to be conducive to better economic outcomes. The Austrian in me is skeptical. I find it very hard to believe that further extension of uneconomical loans at abnormally low interest rates is beneficial either to the economy or sovereign credit.
One thing is certain: this will reinvigorate our climb ever higher on the debt-to-GDP mountain, a far more complex and interesting crag than I would ever have guessed. More on that later.