Geithner, Bernanke and bad debt

Paul Krugman sounds the alarm about the Treasury plan in his Times blog.  The Geithner plan is the message Ben Bernanke delivered on 60 minutes last week in his Uncle Ben's fireside chat: what we have is a crisis of confidence.  We have saved the banks, we're going to print money - a lot of money - and lend it at low rates.  People will borrow it and do things with it. 

Now about all that bad debt: we'll buy it or guarantee it - at a high price on the belief that it's worth more than what people will pay for it now.  But with 12% of home mortgages one or more payments behind (or in foreclosure) those debts are losing value every day.  So as Krugman says we're privatizing profit and socializing the losses.  No wonder Senate Republicans considered Geithner a must.  They like the Bernanke plan, and fear someone with a Swedish approach - interim nationalization, as Krugman elaborates here.  

We'll probably lose the chance for that when the tsunami of populist rage over these losses washes over Congress AND the White House.  The AIG bonus tax vote shows the impulsive and ill-considered measures the House of Representatives can cook up when left-wing leveling sentiment meets right-wing I hate government sentiment.