The Geithner Plan: Little to Worry About
John Hempton gets it:
Bronte Capital: A little bit of careful thinking – and why Krugman’s despair is misplaced: it is simply illogical to believe that
The banks are largely insolvent,
The right or actual government policy is guarantee big banks (ie no more Lehmans) and
The subsidy to the Geithner Funds is a real problem.
If both (1) and (2) applied the Geithner Fund MUST save the government money - so the subsidy is irrelevant. This illogic extends to several of the bloggers I admire most. That is why I think there is a good academic paper in there. Krugman actually expresses “despair” over the subsidy. His despair is misplaced...
As one White House official said (roughly): But the FDIC has already effectively made enormous non-recourse loans to the banks. How can shifting those from the banks to the Geithner Plan funds be a problem?
