I think Brad DeLong is wrong.

Brad's come up with a "useful incremental step" summation of the Geithner Plan, and noted, with due trepidation, that he thinks Paul Krugman is wrong to be appalled by said plan.

Well, no; Krugman is not wrong to be appalled, for a very simple reason Brad consistently leaves out of his analysis. (I cannot decide if this is naivete, the pose of naivete, or an habitual personal benevolence leading to a kind of blindness, nor would I be likely to ever get enough information to decide, but it's a very curious blind spot for an economics professor to have.)

The people who run the US financial system are effectively unanimous in believing that its core purpose is to make sure wealthy people stay wealthy. This is strongly tied to beliefs about class; confirming those beliefs about class is a very large part of Regan's success as a politician. (That they all believe that they themselves properly belong to the class of the wealthy is also a problem, but a secondary one. The core problem would exist if they were a bunch of obsequious managers for wealthy patrons and themselves content to subsist on crusts.)

While that characterization of the people running the US financial system is true, disproportionate societal assignment of risk from what might as well be the capitalist class to the general public purse will happen not by necessity but by preference. The people running the financial system believe that this is the only really legitimate function of government; to make sure the money comes to them from everyone else. Given the slightest chance, they will act to achieve another private profit by means of socialized loss. Since the management of a fund more or less requires authority over the monies, and we know for sure that these are not honest people -- because no one honest would ever have worked for decades to remove the regulations that prevented them from creating the meltdown, nor played the game once the regulations were gone -- it is not a probability but a certainty that there will be another mighty theft.

Leaving aside that this deserving-of-wealth attitude really is the attitude of slave holders -- that they have a real and active right to the benefit of the labour of others, a right that those who labour may not refuse to grant -- and that these are the same people who have run the global financial system as, at best, blind fools, and at worst as something that uses crimes between fraud and counterfeiting as a means of personal enrichment, that belief in a proper immunity from the consequences of failure guarantees that, long term, the economy won't work. No system will stay functioning when the negative feedback has been assigned to a portion of the system lacking the command authority to generate the action that produces the negative feedback. It may, if it was diverse and diffuse and tough to start with, take it a couple of generations to kill it, but that is a protracted and agonizing death, not a stay of execution.

No-one is actually special, in any statistically valid sense; special to spouse and children and parents, close colleagues, the individuals of the small-scale social network that defines human interaction, sure. Special on the scale of economies and nations, none and no-one are. Every single individual in the banking system could be replaced; it would be moderately more difficult to do it all at once, but it could be done.

In the case of the those responsible for the meltdown, it's not enough to replace them. Banks work on trust -- you have to believe your money is really in there, if you need it, and if you want to believe that, you do not give your money to clever thieves -- and until that trust is restored, no amount of policy will be efficacious.

The CEOs and CFOs, the board and the blind regulators and the auditors, the top layers down to the people who aren't called VPs any more, need to wind up pauperised and imprisoned. (Both, not one or the other.) The regulations need to be re-written to function in an utterly transparent and fully distributed way, so that there are many auditors, most unknown, too, because with a billion dollars to do it with, you can corrupt anybody. But for a beginning, the people the whole world knows are thieves have to be removed from positions of responsibility over money.

No plan that doesn't start with will have, or could have, a positive result.