Brad DeLong writes the FAQ for the Paulson/Geithner plan
Brad DeLong has a condensed FAQ of the Geithnerist POV on the bailouts. Naturally, to read it as intended, you have to make the first assumption is that it (the bailout) is being done under good faith.
Q: What is the Geithner Plan?
A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.
Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?
A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.
The second question is the most dubious one. It assumes that Geithner et al. have committed to this course because our very civilization depends on the toxic assets being undervalued by investors. As a mainstream economist who believes in Market Failures (well, so do most American liberals...), DeLong seems willing to grant that this is actually a market failure.