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Another Reason Why Friends Don't Let Friends Read The Politico

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

  1. The banks are largely insolvent,

  2. The right or actual government policy is guarantee big banks (ie no more Lehmans) and

  3. 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?