Will Geithner’s Plan Save Us?

Somebody buy Paul Krugman a drink. “[Geithner’s plan] is more than disappointing,” he writes in today’s New York Times. “In fact, it fills me with a sense of despair.” The problem, as Krugman sees it, is that Geithner is simply rehashing Henry Paulson’s old plan and that it’s a one-way bet: “if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt.” Writing for his blog, however, likeminded economist Brad DeLong declares “I think Paul Krugman is wrong.” He lists three reasons: 1) “I see the Geithner Plan as a positive step from where we are”; 2) “Politics: I think Obama has to demonstrate that he has exhausted all other options before he has a prayer of getting Voinovich to vote to close debate on a bank nationalization bill”; 3) “I think the private-sector players in financial markets right now are highly risk averse—hence assets are undervalued from the perspective of a society or a government that is less risk averse.”