Krugman Doesn't Like It

Krugman doesn't like.

The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system — that is, convince creditors of troubled institutions that everything’s OK — simply by buying assets off these institutions. This will only work if the prices Treasury pays are much higher than current market prices; that, in turn, can only be true either if this is mainly a liquidity problem — which seems doubtful — or if Treasury is going to be paying a huge premium, in effect throwing taxpayers’ money at the financial world.

That's the first time I've seen him suggest it may not be a liquidity problem. I've sensed that this was the goal - to pump liquidity into the system - but this does seem different. If it's a liquidity trap, then you pump money and the boat floats. If it's not a liquidity problem, but something fundamentally broken, then you pump money and the boat still capsizes.