Greg Mankiw defends the Paulson plan (from a distance)

Read the whole thing, which is full of economics.  I think the bottom line is this part:

…that’s [capital injection] a complement to an asset purchase plan, not a substitute — and it’s one allowed by the Treasury proposal and indeed envisaged in some cases. But that will take much longer to implement than an asset purchase. That’s why it’s a complement not a substitute — Treasury needs to act now.

In other words, we are going to get both the Paulson plan and the Dodd plan, or some modified versions thereof.  It was never either/or.  Note that if Greg’s arguments are correct things are very bad indeed.  The outstanding open question is why markets don’t now, pre-plan, successfully trade the toxic assets in sufficient quantities.  But they don’t.


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