I meant to say in yesterday’s post on the leaking out details of the administration’s plan for the banking system, that one should actually separate the issues “is this a plan that stands a good chance of working” from “is this a plan that comports with my beliefs about cosmic and social justice.” Geithner’s plan, it seems to me, does a lot better at the first question than at the second. A nationalization plan, I believe, would do better at the second and at least as well at the first. But the first question is an important one, so it is worth emphasizing that there is reason to believe that this can work in terms of pushing the economy toward recovery.
To that end, I think Brad DeLong’s Geithner Plan FAQ is very helpful in terms of putting one’s mind to rest about the efficacy of these measures. He also recommends this article in The Wall Street Journal and this article in The Washington Post as offering more help in understanding what’s going on than was provided in yesterday’s New York Times piece. They got the story first, which has made their coverage the most influential thus far, but it’s not really the clearest most accurate account.
Still, the Geithner Plan, even if all goes well, will leave us with a situation in which essentially the same large firms with essentially the same management still dominate the economy, but now with a bunch of added moral hazard.