There are many opinions out there on what’s wrong with the economy, what needs to be done to fix it and how the current administration is doing. All of us contributing to this blog do not even share the same opinion. However, I am not one who thinks Geithner is doing a terrible job and needs to resign, certainly not yet. Yes, I’m troubled by his and Larry Summers’s past role in promoting disaster capitalism, but I don’t think that’s what’s happening now, and I don’t think Obama has sold us up the river. I think we are in such a mess that no one really knows what will work, and we have to try a lot of things.

To that end, I want to encourage all of you to read today’s this weekend’s post by economist Brad DeLong. In it, he answers a number of key questions and tries to provide insight into how the plan will work, not just rage-inducing headlines of how “taxpayers are bearing the brunt of bailing out Wall Street” as the NY Times likes to scream of late.

Here’s a sample of DeLong’s FAQ on the Stability Plan:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world’s largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off–in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn’t make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money–for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Q: Where does the trillion dollars come from?

A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program’s operations.

Q: How does having the U.S. government invest $1 trillion in the world’s largest hedge fund operations reduce unemployment?

A: At the moment, those businesses that ought to be expanding and hiring cannot profitably expand and hire because the terms on which they can finance expansion are so lousy. The terms on which they can finance expansion are so lazy because existing financial asset prices are so low. Existing financial asset prices are so low because risk and information discounts have soared. Risk and information discounts have collapsed because the supply of assets is high and the tolerance of financial intermediaries for holding assets that are risky or that might have information-revelation problems are low.

Please, please read the rest.

This all tastes and looks bad. Obama’s case, which I believe, is that the alternatives are probably worse. This is not about rewarding bad actors. It’s about restoring sanity to the market. It was insane  in the first place to get us here, and now things have swung hard in the opposite direction. There is such a lack of confidence in the economy right now, that even assets with value are getting smeared with the failure of those without. Part of the solution is allowing justified confidence to return, but that process will take a few years. In the interim, we can fan the flames of hysteria and push possibly-sustainable businesses over the edge, or we can ride it out. The President is throwing a massive amount of effort at helping us get through the storm.

Here are the highlights of the Financial Stability Plan including some data on the effects so far. Here’s Geither’s op ed in today’s WSJ. Here’s Paul Krugman arguing against DeLong.

I’m not without reservations, and Lord knows I’m not in any special position to have the answer myself. But based on research so far, I don’t think we’re being sold out. For another good source of analysis on our economic predicament, I highly recommend NPR’s show Planet Money.

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