Quick Circular Thinking about the Plan

The point of my previous post was that the politics as well as the economics of any financial rescue plan had to be flawless. 

That's what many critics of the Geithner plan and proponents of outright nationalization of the banking system are missing or ignoring.

What those critics are probably right about is the fact that the Geithner plan will create "collateral windfalls" i.e. some undeserving institutions will reap some benefit from it. However, isn't it logical and inevitable that the solution to a financial catastrophe that created a lot of collateral damage should create some "collateral windfalls"?

And yes, such windfalls do have the potential to cause major political problems as the AIG bonuses furore demonstrated all too well. 

So we're back to the same key point: getting the politics right is at least as important and as tricky as getting the economics right. 

And only getting both aspects right will bring back the necessary system-wide confidence needed to finally begin to turn the corner.