The government on Wednesday is expected to unveil the latest edition of a plan to allow banks to unload their bad assets, but investors should view it as a downsized backstop rather than the panacea it was once heralded to be.

The plan has been nearly nine months in the making, through several iterations and revisions. The initial focus of the $700 billion Troubled Asset Relief Program was to buy up assets weighing on bank balance sheets, but the program couldn't be set up fast enough. It was instead shifted to inject capital directly into banks.

After a five-month pause plagued with uncertainty, the market rallied in March when the Obama administration outlined its own version, the Public-Private Investment Program, or PPIP. Finally, it seemed, banks would be able to cleanse their balance sheets, and move forward back into profitability with fresh capital.

"PPIP = price discovery," said a note by Goldman Sachs analysts at the time, referring to the ever-present conundrum of what the troubled assets are actually worth.

But it seems that prices may not have actually been discovered. Soon, additional issues started to emerge concerning banks' willingness to sell and investors' willingness to participate in the program. There's no evidence that the government has found -- or can find -- a solution to them.

At a conference in early June hosted by the Securities Industry and Financial Markets Association (SIFMA), participants and panelists gave the impression that PPIP was essentially dead in the water.

"It's clear from our perspective that the history of troubled asset programs is, well, troubled," said Tim Ryan, the CEO of SIFMA, which strongly supports the PPIP plan nonetheless.

The assumption took hold when the Federal Deposit Insurance Corp. indefinitely put on hold its portion of the program, which was intended to help banks get rid of whole loans that were going bad. The Treasury Department is overseeing the other, far larger portion of the program which would buy up banks' troubled securities, which has hit some snags of its own. It was initially intended to pump up to $1 trillion into the system to grease the wheels of bad-debt purchases, but may only end up requiring tens of billions of dollars.

The program's downsizing stems from the fact that banks seem content to sit on the bad debt rather than sell it at rock bottom prices being offered in the private market.

The toxicity of bad assets has lessened dramatically through multiple bank failures, acquisitions and other government programs. There's no longer a fear that major banks like Citigroup ( C), Bank of America ( BAC), Wells Fargo ( WFC), JPMorgan Chase ( JPM), Goldman Sachs ( GS) or Morgan Stanley ( MS) will fail since they've written down the worst of the worst assets, and have benefitted from government aid.

The most troubled companies, like Bear Stearns, Lehman Brothers, Fannie Mae ( FNM), Freddie Mac ( FRE), American International Group ( AIG), Merrill Lynch, Washington Mutual and Wachovia, have failed or been acquired.

As a result, fears have abated, the credit markets have defrosted significantly, and the stock market has rallied more than 30% since lows hit in early March. The easing has lessened the need for government subsidies, as evidenced by the Federal Reserve downsizing its own liquidity programs last week. Several panelists at the June 9 conference said they didn't believe government-subsidized leverage would not do much to close the bid-ask spread. Doubters included Scott Romanoff, a managing director at Goldman Sachs; David Coulter, a managing director at Warburg Pincus; and Brian Sterling, an investment banking analyst at Sandler O'Neill.

Allowing banks to participate in the program as buyers may help tighten the spread. Speculation had ramped up that banks might fix prices for their own assets if allowed to participate, but FDIC Chairwoman Sheila Bair explicitly quashed those concerns in late-May. Joseph Jiampietro, a senior adviser to Bair, said more recently that while banks would not be allowed to buy their own assets, they might still be able to participate as buyers generally.

Still, hedge funds and private equity firms are likely to make up a majority of the investor group. Rather than bidding low, many are unwilling to bid at all, out of fear that participating in a government program could open them up to tighter regulation and scrutiny over pay packages. They've already seen this occur with firms that received TARP dollars or more extensive federal assistance.

David Miller, an official who oversees investments at the Treasury Department, told conference attendees that uncertainty about executive compensation rules was just something investors would have to live with. Fund managers would just have to "price in that uncertainty," he added.

The Treasury Department has reportedly selected nine fund managers for the program, including some high-profile investors who have a good relationship with regulators, and may woo peers to follow them down the PPIP path. Two of those managers are widely expected to be Pimco, the fixed-income behemoth owned by German insurer Allianz ( AZ) and run by prominent investor Bill Gross, and BlackRock ( BK), which is run by Larry Fink. Both firms have been prominent consultants and advisers to the government as it has created and launched a variety of programs in response to the financial crisis.

CNBC reports that two other managers will be a distressed real estate and debt fund run by Wilbur Ross and a joint venture between General Electric's ( GE) GE Capital and private investor Angelo Gordon & Co.

But whether the broad array of hedge fund and private equity investors will be willing to plunge their cash into a program with untested results is yet to be seen.

Of course there are still concerns about credit quality, especially when it comes to credit card debt and commercial real estate. Those concerns are heightened for smaller, regional banks whose books are especially loaded with CMBS they have been unable to offload.

PPIP would be a great initiative for those reasons, but the fact is, its necessity has lessened dramatically. As a result, it may end up being what Romanoff pegged as "the greatest program never to have occurred." The mere idea of PPIP simply because of how much it helped to stabilize the markets and boost confidence in the system.

Indeed, many conference attendees expressed an urgency for the government to set up the program, just in case the market goes into a freefall again. So, even if PPIP never occurs, the assurance that it is in place may be enough to do the trick.