Even the architect of the Swedish banking system takeover admits that using the same technique as Sweden (bank takeovers by the FDIC, in the case of us) may not work here the way it did there, and that a more gradual solution involving subsidized sale of assets may not only be more palatable but more successful here. The US is not Sweden, and it is possible that there is not enough political power to force a nationalization of the many banks involved (nor enough money). Krugman thinks it'll work, but he doesn't know so. Nobody knows whether federal takeovers, if politically possible, will do the job. But the Geithner plan MAY do the job. And no - you don't know, either. When economists are still bludgeoning each other with their Nobel prizes on the front pages of the nation's newspapers, that indicates a certain level of uncertainty about the best plan for going ahead.

What do you know that Roubini doesn't know? He thinks it may work.

Auto workers are told 'tough luck you're out of luck and your job'. Investment bankers, hedge fund managers and various assorted Wall Street types? Well no problem we'll make sure you'll keep on being able to live the lifestyle you are accustomed to and deserve to live.

Obama picked industry insiders to recommend who should be the members for 'Team Obama'...and it shows. Team Obama better start worrying about the plight of Main Street more than the plight of Wall Street...because Obama and his Merry Band would be the only ones, since the only concern Wall Street has for Main Street is how much money can be made off of it, or how much of Main Street's money they can get the government to give them. Speaking of 'streets' we have ones named after what is going on right now...they're called 'one way'.

This is absurd. If the hedge funds who participate in Geithner's private-public partnerships end up making a ton up money (as Baker suggests they will), that means the government will also end up making a lot of money. So we won't be spending a trillion taxpayer dollars that could be used for S-Chip - we won't be spending money at all. We'll be making it.

Dean Baker should try arguing out of logic rather than professional jealousy. I mean, ok, we get it: you saw the housing bubble coming and Summers et. al. didn't. I'm sorry that they got hired to save the world while you're stuck as chief economist of TPM Cafe. But really, try to get over it. The pity parade is embarrassing to watch.

WOW. Your anger is really coming through Dean Baker. This is pathetic. How is this any different than any republicans twisting ideas as raising taxes? Because it's a dem that's doing it? No Sir, there is no difference.

I recommended your post, Mr. Baker, but your alternative idea stinks.

There is a huge amount of cash out there. That cash could easily form a pile of new banks. Goldman Sachs is said to be sitting on $100B itself. Let the new banks lend out money on risky loans. Don't "rehab" existing banks with assets only gamblers will buy at any price.

Why protect bond holders at all, when it comes to banks? Let the problematic banks not lend, and thus not make much profit. Don't force them to do anything except to adhere to the letter and spirit of the banking laws.

Other banks who are not so burdened can take up the lending slack.

What is Geithner's plan really about? Is it really about getting banks to lend money?

Two things we should do, regardless of which bank plan we end up:

1. Rewrite tax law so hedge fund managers have to treat their proceeds as income rather than capital gains.

2. End the vast disparity between income tax and capital gains tax rates. I think it's fair to index capital gains for inflation, but other than that, capital gains should be taxed just like wage income. Why is it that people who make money with their money get a huge tax break, while people who make money through labor have to pay high rates? I have a feeling it's the same reason why million-dollar bonuses paid to AIG executives (and the contracts that require those payments) are sacrosanct, while the union contract that pays an autoworker's widow a middle-class pension is considered some kind of abomination that must be eradicated.

Maybe the whole problem with the American economy--maybe the whole problem with America itself--is that we've come to despise labor--real work that makes real things--and instead love any kind of fast-money financial scheme that gives us the trappings of wealth without the inconvenience of work (and, as we've seen, without the substance to truly sustain the wealth). We have a continually dwindling manufacturing base and, until recently, a grossly swollen financial sector. We tax labor at high rates, and limit taxes on capital. And our press continues to look down on ordinary laborers while praising the financial "masters of the universe." Yes, we have a serious economic problem today. But sometimes I wonder if the real problem is cultural. If so, it's an old and deep problem, which Charles Dickens described perfectly after he visited America way back in 1842:

Another prominent feature [of America] is the love of ‘smart’ dealing: which gilds over many a swindle and gross breach of trust . . . The merits of a broken speculation, or a bankruptcy, or of a successful scoundrel, are not gauged by its or his observance of the golden rule, ‘Do as you would be done by,’ but are considered with reference to their smartness. I recollect . . . remarking on the bad effects such gross deceits must have when they exploded . . . but I was given to understand that this was a very smart scheme by which a deal of money had been made . . . The following dialogue I have held a hundred times: ‘Is it not a very disgraceful circumstance that such a man as So-and-so should be acquiring a large property by the most infamous and odious means, and notwithstanding all the crimes of which he has been guilty, should be tolerated and abetted by your Citizens? He is a public nuisance, is he not?’ ‘Yes, sir.’ ‘A convicted liar?’ ‘Yes, sir.’ ‘He has been kicked, and cuffed, and caned?’ ‘Yes, sir.’ ‘And he is utterly dishonourable, debased, and profligate?’ ‘Yes, sir.’ ‘In the name of wonder, then, what is his merit?’ ‘Well, sir, he is a smart man.’

We love our smart men, it seems, no matter how many times they jilt us and leave us standing alone and empty-handed at the altar.

What ever happened to the "Free Market"?

If the "toxic" securities are going to end up making so much money for the Taxpayers if those taxpayers would only buy them at the price the financial wizards are placing on them, why wouldn't they make money for those financial wizards?

It is a commentary on their value that the financial wizards want the taxpayers to buy these worthless "Toxic Assets" at a grossly inflated value.

Put them on the open market and see what the "Free Market" price (what their actual value) is.

The US taxpayer does not need to bail out rich foreign bankers.
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I must say I'm getting tired of this medieval scholastic debate. Geithner's plan is a straightforward ripoff of taxpayers.

There are only two types of "private investors" who will participate -- the banks themselves and the big bondholders -- for example, PIMCO who will see its bond portfolio zoom up in value.

For $7 (times a billion) out-of-pocket these two sets of knaves get the right to have their partner, the taxpayer, overpay $30, $40, $70 (times a billion) for legacy, troubled, toxic assets and pocket the difference.

For what benefit?

It's great to see that we have so many big-spenders here. At a time when you have lots of nutballs in Congress (perhaps a majority) who want to Social Security benefits for seniors, and we have to constantly fight to get money for children's health care, they are just fine with giving the banks and hedge funds a trillion dollars on the hope that it might ease lending.

I like rich corrupt and incompetent bankers as much as the next person, but I guess I have somewhat different priorities than some of the folks on this thread.

i agree with dean baker %100.

we are pissing away billions to prop up aig and keeping the same crooks that ran aig into the ground. i guarantee that there is other fraud going on here in other divisions as well. we may be looking at an enron, not just "one" rogue division.

if you want to get aig lending again, have the gov't take it over, sell off the assets and liquidate the losses. if some losses have to be paid, then just pay'em. anyone at aig "worth" a million bucks is certainly just part of the problem.