Keynesian economics: Krugman explains

When I was young there were two choices: Marx or Keynes.  The falling rate of profit and the general crisis of capitalism yielded its cure: central planning.

Keynes/Roosevelt/Paul Samuelson stood for government intervention when the capital markets froze up.

Then came Milton Friedman and the rise of the free marketeers.  Now they have the upper hand and Keynes's heirs like Paul Krugman are frozen out of the White House  because even though they were right they were politically anathema to the right with whom compromise was necessary.  so Obama and Geithner guessed low on the stimulus needed, ran into a Republican fan when it proved short of being enough, and are now stuck in a major jam.

So what is Keynesian economics about?  HERE is Paul Krugman's Keynes Lecture.  Warning - it's wonkish and it has graphs with xy axes..

Galbraith v. Geithner, Goolsbee v. Krugman

Here's the video of James Galbraith's take on how under the Geithner plan th the banks get insulated and the taxpayers take the hit for bad loans.

And here's the Hardball video of Austan Goolsbee, Director of the White House Council of Economic Advisers, scarcely able to disagree with Krugman's point about socializing the losses and privatizing the profits.  Krugman said:

"[T]he Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets."

Since the government will guarantee smtg like 85% of face value, the only loss is the buyer's half of 15%.  If the mortgage proves to be good, or the house has value, then all the gain goes to the buyer.  

Is that right?

So after you view these two videos, please tell me why is the administration doing this?

Is it that ideology makes Congress an insuperable obstacle to nationalization - even though that would get us public control of the banks at low cost (because their obligations exceed their assets) and the public would get the gain if the debt is collected, or the asset sold at a decent price?

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.