Criticism of Obama bad asset plan leaves deep worry that taxpayers will get short end of deal as will economy; Krugman says 'time is running out'

It takes a lot of reading WSJ and NYT stories and listening to a lot of TV and radio analysts to determine if the Obama plan to get bad bank assets out of the financial system is a good idea.

But there is one part of the plan that is fundamentally wrong: the government is putting up way too much money to make buying these assets attractive to investors. And that's why Wall Street shot up yesterday.

It didn't know that the president and his treasury secretary were going to be so generous in putting 82-cents for every dollar of bad assets an investor take a risk on.

The administration is hoping to boost the value of the assets with your money, instead of letting the marketplace do it. And that's very bad news. Hopefully, the White House press corps will have done its homework and grill the president on his plan tonight at his press conference.

Nobel Prize-winning economics columnist Paul Krugman puts it this way:

But the real problem with this plan is that it won’t work.

Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.


AIG is going to look like a picnic compared to this.