Defenders of the Geithner plan argue that, even if Obama knows he will eventually have to nationalize banks, he has to show he is willing to try everything, absolutely everything, else first, so that he can convince Congress that he really has to nationalize banks.
So the idea is to buy a few votes in the Senate (A Republican and who knows how many Blue Dogs) for a mere $ 500,000,000,000 OK less, since not all of the money will be lost. With luck only $ 100,000,000,000 or maybe ten to twenty billion a vote.
I think you could buy them cheaper with a public private plan with lower subsidies (I mean if the plan is to fail one might as well fail cheaply) but I’ve never bought a Senator.
In any case, DeLong et al seem to understand what is going on. Today’s Washington Post tells me
The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.
Sounds a bit like Bush and Iraq frankly. Asking for the authority while saying they don’t want to use it, and going through the motions of trying something else. I didn’t like Colin Powell’s speech at the security council, but now I notice its strong point — it didn’t cost a hundred billion dollars.
Oh well you go to nationalization with the Senate you have not the Senate you want.
update: Paul Krugman writes
It’s a bit disappointing to see the Obama administration engaging in this sort of market-worship — hailing markets as a Good Thing in themselves, rather than as an often but not always useful means to an end. But I have reason to think that unlike the Bushies, they don’t really believe it; it’s just politics.
Now the double super secret deepest background conversation with a source who is so anonymous that Krugman provides no hint as to whether his source is human or devine which is his “reason to think” might have been insincere. Policy makers have been known to secretly tell different people who believe contradictory things that, yes I can tell you in secret I agree with you, but if you quote me I will deny it.
However, Paul Krugman has a long memory and smart people are reluctant to jerk his leg.
I’d say my despair is now 60% lifted.