According to Ryan Grimm at HuffPo, when on 2/9/09 Tim Geithner briefed congress on the Obama administration’s latest bailout plan, they laughed. The next day when Geithner announced the plan publicly, the markets took an immediate dive.

Pretty much, Obama’s plan is the same as Bush’s plan but with additional assurances of transparency. And, pretty much, Bush’s plan hasn’t worked. As Paul Krugman sarcastically remarked: "under Bush, financial policy consisted of Wall Street types cutting sweet deals, at taxpayer expense, for Wall Street types. Under Obama, it’s precisely the reverse."

Specifically, the Bush/Obama plan leaves the executives who ran the banks into insolvency in charge of them and gives them hundreds of billions of taxpayer money to continue their foolish games of absurd bonuses to themselves, unwarranted dividends to their stockholders, unwarranted loans, and no loans to the people and businesses who need and deserve them. And, that Bush/Obama policy is at best unusual.

Per University of Texas economics professor James K. Galbraith:

And the problem is that when you—the little bit of checking that has been done appears to reveal that a very large fraction of these securities contain, on the face of it, misrepresentation or fraud in the files. And so, we are looking at an asset which nobody, no outside investor doing due diligence on behalf of a client for whom they have some responsibility, would touch. And that is the issue. That’s the problem.

If that is indeed the case, then I think it’s fair to conclude that the large banks, which the Treasury is trying very hard to protect, cannot in fact be protected, that they are in fact insolvent, and that the proper approach for dealing with them is for the Federal Deposit Insurance Corporation to move in and take the steps that the FDIC normally takes when dealing with insolvent banks.

And the sooner that you get to that and the sooner that you take these steps, which every administration, including the Bush administration, actually took in certain cases—replacing the management, making the risk capital take the first loss, reorganizing the institution, guaranteeing the deposits so that there isn’t a run, reopening the bank under new management so that it can begin to function again as it should have all along as a normal bank—the sooner you get to that, the more quickly you’ll work through the crisis.

It was great political theater to watch Obama scold the bank executives for continuing to give themselves excessive bonuses, but what did he expect? Last fall, he supported a plan that took the unusual step of leaving those executives in place. If he expected "change," he should have legislated it. For him to now put forth a plan that caps executive compensation but leaves the rest of their bogus practices in place is silly.

And it’s not only Professor Galbraith who says so. Per conservative Harvard professor Niall Ferguson:

… banks that are de facto insolvent need to be restructured, not nationalized.(The last thing the U.S. needs is to have all of its banks run like Amtrak or, worse, the IRS.) Bank shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalization, but only after losses have been meaningfully written down. Those who hold the banks’ debt, the bondholders, may have to accept a debt-for-equity swap or a 20% "haircut"

IMHO, the differences between "restructuring" and "nationalization" are not so critical, but the major economists who correctly predicted the meltdown, Krugman, Stiglitz, Roubini, Taleb, and Baker, have individually come out for some form of nationalization and their relevant comments are quoted in this Dkos diary by David Mizner.

Hopefully, Congress will take charge and force a plan that involves restructuring and/or nationalizing these insolvent zombie banks before our president can gift them more of the public’s money.

UPDATE: I just now noticed this excellent Oxdown diary by wesgpc from last evening on the same subject making a similar point.

UPDATE II: I’d also like to recomment "No Tough Love for Bankers" by Robert Scheer this morning in the Nation.