To Paul Krugman's immense credit, in his latest blog post , he cites (and critiques) a very interesting piece that is quite pro-Geithner plan and quite critical of his (Krugman) own extremely negative view of it.
The authors of the piece remind us of the two-dimensional aspect of any solution to the financial crisis: the economics part and the politics part:
As the liberal economist of record, Krugman’s critique of PPIP received a lot of press much of it uncritical. I think a little more critical reading is warranted, that his cry for nationalization now misses something crucial. Namely, he has a blind spot for the political and implementation risks and challenges. As John Heilemann wrote in the New York Magazine, “Getting the economics right may be devilishly difficult—but the politics are even trickier, and just as crucial.”
Krugman, in his critique, gets to the crux of why he thinks the PPIP (Public-Private Investment Program) is less than ideal:
[It] tr[ies] to fix the banks by driving up the price of a whole asset class. Most of those assets are NOT held by the probably insolvent banks. So it’s a diffuse, inefficient way of tackling the problem — a taxpayer subsidy to basically anyone holding toxic waste legacy assets, rather than a direct infusion of funds where needed. Contrast it with what the FDIC does when it moves in: it doesn’t shower money on banks in general, hoping that this will solve the problem; it seizes banks that are in trouble, and recapitalizes them.
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