The Obama administration has announced a vast effort to get up to $2 trillion in toxic assets off financial institutions' books by offering taxpayer-backed loans to hedge funds and other investors who might buy them, trying to improve on earlier strategies that have failed to rekindle trading in securities backed by mortgages and other debt. The goal is to thaw the credit markets—to get banks to lend money the economy needs to grow.

Will it work? Experts have mixed views.

"I think they are headed in the right direction," says Wharton finance professor Jeremy J. Siegel, arguing that the government's nonrecourse loans will encourage hedge funds and other potential buyers to offer attractive prices for banks' toxic assets. (Nonrecourse loans are those where, if a borrower defaults, the lender cannot go after any asset other than the security pledged as collateral.) The government will put up about $6 for every $1 spent by investors.

"If they provide good lending terms and lend a substantial amount, you could get prices that are substantially higher than what the market is paying today," Siegel notes, adding: "They are going to reignite a market." But others are not as certain. "The policy makers have to be given credit for systematically attacking the integrated components of these problems," says Wharton real estate professor Susan M. Wachter. As for whether this strategy will succeed, "I think it will be three to six months before we know whether it's working."

Initially, the financial markets were enthusiastic, and stocks soared around the world after the March 23 announcement. But most experts say big questions hang over the program. "Will these [investors] pay sufficiently more than what are now called fire sale prices to induce the banks to sell?" asks Wharton finance professor Marshall E. Blume. "That's the big question."

Banks are unwilling to sell at rock-bottom prices because that means booking losses that could be avoided if prices recover later. Among the problems: The value of a toxic asset largely hinges on the default rates of the underlying loans, a figure that cannot be predicted. Some of these assets are safer than others, but not many people are equipped to tell the difference. "It is almost impossible to figure out the prices of these things," Blume says.

Ultimately, the health of the housing market is the key to default rates, according to Wachter, and it is too soon to know when home prices will stop falling. "It is the purchase price of homes that will determine the value of the toxic assets—the mortgage-backed securities."

If the new purchase programs lead to market prices too low to induce banks to sell, they will prolong the uncertainty about bank liabilities that has choked lending. On the other hand, the public loans dramatically reduce buyers' risks, which could lead to prices that are too high, putting taxpayers at grave risk if the assets turn out to be worth less than the investors borrow from the government.

Finally, no one knows for sure whether bank lending will resume even if toxic assets are removed from their books.