The Battle So Far

There's basically two lefty blogosphere camps now on the Geithner Plan.

One is the Brad DeLong/BooMan/Kevin Drum camp, which basically says the problem is that toxic assets are critically undervalued and the solution is the Geithner Plan, it's as good as we can hope for, there's a decent chance that it'll work, but that the real problem is the Left is insane for attacking Geithner now and is making a critical mistake: it will only assure that the plan fails along with the rest of the Obama agenda.

Ergo, the correct plan of action is to stay cool and be practical, let Obama and Geithner get to work, support them on this, and pray it works. We don't have much choice: There's a greater than zero chance the plan will work, and a zero percent chance the plan will work if Geithner resigns and the GOP is able to block a replacement, assuring that zero work gets done to save the economy, leading to economic failure.

The other is the Digby/Kroog/John Cole camp, which basically says the problem is that the assets don't matter, the fact that one financial entity can cause a near collapse of the system is, and that the Geithner Plan is whistling past the graveyard. The real problem is that people refuse to see the system is broken, the banks are insolvent, and that Geithner's plan does nothing to address the issue. At best the same entities survive to cause problems down the road, at the worst we give away trillions into the black hole of moral hazard and the economy follows.

Ergo, the correct plan of action is to dump Geithner (for somebody who does see that the question of undervalued toxic assets is like wondering what temperature the lava is when it's flowing right towards you from the volcano) and then replace him with somebody ready to break up these Too Big To Fail institutions. There's a greater than zero percent chance replacing Geithner and instituting Plan N will save the economy, and a zero percent chance that the Geithner Plan will work, leading to economic failure.

The problem is one of these two groups is right, and making the wrong choice here more or less leads to total financial ruin. I happen to believe the second camp is correct, but I have to respect some of the arguments of the first camp. It boils down to which do you see as the larger risk, keeping Geithner and his plan, or dumping him and trying to make a new one?

Only Obama gets to make that choice.