Specifically, he is freaking out over the “let them eat cake” policies of Mssrs. Geithner and Summers with regard to the insolvent banking giants:

….Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

He is referring, of course to Geithner’s insistence that the big sh%$pile has an “artificially depressed value”, and Ben Bernanke’s denial of zombie financial institutions, including AIG (!).

These, quite honestly delusional preconceptions have a very real cost, as the Nobel prize winning economist notes:

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

(emphasis mine)

Personally, I lay even more of this at the feet of Lawrence Summers than I do either Geithner or Bernanke: He was one of the most vociferous free-market mousketeers, and his professional life has been marked by failure and misery left in his wake.

Of course, Summers will come out of this clean, as he has mastered the art of failing up even more than Dick Cheney.