You are right that the Geithner plan is more stage management than sound financial management. Yet before we condemn Obama, let's see how he reacts to the probable failure of the private capital injections to shore up the banks with failing stress test grades.
Obama has shown himself to be masterful at political arts, and there is substantial opposition in Congress to nationalizing big banks. Obama's way is not to bludgeon his opponents but to lay out his case carefully. That does not mean he will stick with a failing program long after it's obvious it's a loser.
I think it is likely that Obama will follow Geithner's rose-colored glasses path until it becomes clear that all it's doing is launching an era of zombie banking, à la Japan in the 1990s. As Simon Johnson pointed out in his brilliant piece in the May issue of Vanity Fair, at some point Obama will be forced to nationalize some big banks that are hopelessly underwater and rapidly becoming bottomless pits into which taxpayer money is disappearing at an alarming rate. At that point we'll know whether Obama has really grasped the problem he faces. I think the odds are pretty good that he will have.
May 19 2009 - 4:00pm