The Geithner Plan could work

The economic logic of nationalization to solve the banking crisis is compelling, but I'm increasingly convinced that the Geithner plan has a good chance of succeeding on its merits. It does appear that he managed take the deeply flawed Paulson Plan and turn it into a workable solution. inelegant, but workable.

This post by The Incidental Economist adds an important element: He notes how critical economist Paul Krugman has been of the Administration's solution. And, even though Krugman has been spot on for years, I think he's being too critical of Geithner and the President this time around: TIE makes a good case that the politics of the Geithner plan are better than the politics of nationalization.

As the liberal economist of record, Krugman's critique of PPIP received a lot of press much of it uncritical. I think a little more critical reading is warranted, that his cry for nationalization now misses something crucial. Namely, he has a blind spot for the political and implementation risks and challenges. As John Heilemann wrote in New York Magazine, "Getting the economics right may be devilishly difficult--but the politics are even trickier, and just as crucial."

According to Obama aides, "Krugman's suggestion that the government could take over the banking system is deeply impractical." (Newsweek) Impractical politically but also because nationalization would require expertise and staff the Treasury Department does not yet possess. Therefore, like it or not, Geithner needs the banking industry's cooperation to increase lending. He nearly lost it during the uproar over the AIG bonuses. He'd lose it for sure with a nationalization plan.

President Obama is acting more like FDR than Keynes.
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