He usually does, but in this case, his point is good even by his standards.

Specifically, he says that the bank bailout that Timothy “Eddie Haskell” Geithner and His Evil Minions^™ was so badly executed, and so without consequences to the people who made this mess, that it has completely soured the public on any further attempt by the government to fix the problem:

…..

So could the feds have negotiated a haircut? Yes. It might not have been that much money, but it would have had a lot of symbolic importance. And that matters.

Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.

(emphasis original)

Krugman is talking about Geithner’s decision to pay off AIG’s swaps to the counter parties, like that great vampire squid wrapped around the face of humanity,^* Goldman Sachs at 100¢ on the dollar, which was both stupid and highly unusual:

But Wall Street doesn’t work like that, and never has.

Big financial institutions are a small club, with a shared interest in sustaining the system. Ever since the days of JP Morgan it has been standard practice, in times of crisis, to get major players together in a room and get them to forgo short-term profit maximization on behalf of the industry interests. It happened in the Panic of 1907; it happened in the Latin American debt crisis of the 80s; it happened in the LTCM bailout, which was financed by private firms, not the feds.

I fear that these actions, amongst others, have completely soured the American public on the idea of any government bailout.

To quote a subordinate, who was speaking to Captain Tupolev as they were about to be sunk by their own torpedo, “You arrogant ass. You’ve killed us!”

Let me make this clear: This sad state of affairs is not Geithner’s fault. It would be absurd, and stupid to say, “If only the Czar knew.” This is going on, and continues to go on, because this is what Barack Obama wants.

He has people around him, like Paul Volker, who have been giving him contrary advice, and he chooses not to listen to them.

^*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.