A Vote for the Geithner Bank Plan

Brad DeLong has published an article that supports the Obama administration's plan for the banks. But he isn't happy. Why? Because it is not enough.

Here is the key bit from the end of the article:

The problem is that the Geithner Plan appears to me to be too small - between one-eight and one-half of what it needs to be. Even though the US government is doing other things as well -fiscal stimulus, quantitative easing, and other uses of bailout funds - it is not doing everything it should.

My guess is that the reason that the US government is not doing all it should can be stated in three words: Senator George Voinovich, who is the 60th vote in the Senate - the vote needed to close off debate and enact a bill. To do anything that requires legislative action, the Obama administration needs Voinovich and the 59 other senators who are more inclined to support it. The administration's tacticians appear to think that they are not on board - especially after the recent AIG bonus scandal - whereas the Geithner Plan relies on authority that the administration already has. Doing more would require a legislative coalition that is not there yet.

It is interesting that an economist from Australia quoted on the Crooked Timber blog points out that DeLong's "support" is in fact tepid despite its presentation as "positive":

The views of ‘market economists’, representatives of financial businesses on whom the press commonly relies for instant reaction on such matters, were overwhelmingly favorable. By contrast, the responses from economists who actually undertake research into how the economy works ranged from outright rejection to the most tepid of endorsements.

In many ways, the endorsements are more damning than the criticism. Berkeley economist Brad DeLong, who has been among the most prominent supporters of the plan sees it as the best that can be done without new legislation, which would almost certainly fail in the wake of the outrage over massive bonuses paid to the executives of failed banks. And, he says, it might lay the groundwork to convincing doubters of the inevitability of bank nationalisation. Writing in the New York Times, he says ‘“We tried alternatives like the Geithner Plan and they did not work” might well be an effective argument several months down the road.’