Brad Delong leads today with a piece in which he says that Felix Salmon says, the David Leonhardt says Timothy Geithner says  that ......you get the idea.Here's an excerpt

DELONG STARTS HERE

Felix Salmon writes:

Bailouts: Geithner vs Barofsky: David Leonhardt has managed to get a quite astonishing on-the-record quote from Tim Geithner:

“The central paradox of financial crises,” Timothy F. Geithner, the Treasury secretary, said before leaving for the Group of 20 meetings in Europe last week, “is that what feels just and fair is the opposite of what’s required for a just and fair outcome.”

This is textbook Geithner. For one thing, it’s pure Technocrat. Geithner, here, is the worldly policy wonk, explaining why it’s silly to simply do what feels right. In fact, you should do what feels wrong! The quote is also extremely defensive — as it probably should be, coming from the one member of Obama’s economic team who played a central part in orchestrating the Bush bailouts. And I can’t help but see the influence of

(LarrY), Summers said:……………………………….,

• lend freely

• at a penalty rate

Lend freely: The (main)……… problem is that…. investors wish to hold …cash---just as …. the crisis,,,diminishes the supply of cash The central bank by lending freely to debtors can turn their liabilities ………………………..-back into cash.  Moreover, confidence that the crisis will not spiral out of control will (cause)………………………..the economy and the financial crisis(to) right itself.

At a penalty rate: The second-order problem is that the failures…………………….. that caused the crash and crisis need to be punished…(otherwise).. you have created an economic and political disaster……… economic in that you have just given incentives to create ……………………………..bigger financial crises in the future…… political because voters will conclude that you are wholly-owned tools of Wall Street, .

"But", Geithner might say, "we couldn't lend at a penalty rate! These banks were not only illiquid but insolvent. If we had lent them money at a high interest rate that would not have made their other liabilities safer but riskier." That is, I think, largely true. And that is very important.

However, in that case there is a corollary to the Bagehot rule: if the institutions that need to be to supported are too weak to be able to stand being lent to at a penalty rate, take equity.

. END 

Brad continues by quoting other plausible objections to what Salmon wrote and then his own plausible objections to those plausible objections. Worth reading

What Flavius says is We don't know..

No one does.