This morning, Secretary Geithner held a pen-and-pad briefing with reporters. The White House's transcription elves just sent out the Q&A, and it's a worthwhile read. I wouldn't say it's a particularly compelling defense of the plan: Geithner seems reluctant to engage the critiques directly, but because of that, he's never quite able to layout the virtues of this plan versus other plans. Both Brad DeLong and Noam Scheiber are more convincing on the merits of Geithner's approach. But Geithner's briefing is a useful look into the messaging that the White House is putting behind the plan. The most notable aspect of that is probably their decision to argue against nationalization in terms of risk. For instance:Another alternative is to have the government come in and purchase directly these assets and hold those, manage them, and sell them over time. That would involve the government assuming much more risk than under this program; create much greater challenges for managing these things sensibly over time; and again leave, in our judgment, the government more exposed, assuming more risk than it should, more exposed to loss over time, and in our judgment not a plausible, effective alternative.It's true that nationalization would involve the government assuming total risk, as would some midway strategy wherein the government buys assets without totally absorbing the banks. What Geithner doesn't say, however, is that such a strategy would also see the government realize the full profits if the assets are indeed undervalued. The government not only assumes full risk but also positions itself to realize the full opportunity on behalf of taxpayers.As it is, Geithner's plan sees the government assuming up to 95 percent of the risk (in an investment where the government is maximally leveraged and the asset busts) but it can only reap 50 percent of the potential profit. A move to a strategy wherein the government bought assets on its lonesome would involve a relatively larger increase in opportunity than risk. You can argue that that's better and you can argue that that's worse. And even if you think that's a better deal were all else equal, there are still other reasons you might oppose nationalization, ranging from fear of market reaction to concerns about federal competence. But it's not clear to me how far Geithner is going to get by misrepresenting the concerns of his critics. Anyway, full briefing follows the jumps.
