"The problem is that the banks are not solvent unless they can claim these assets are worth 50, 60 cents on the dollar, whereas nobody is willing to pay more than 30 or 20 cents on the dollar to buy them," he said.
Krugman said Obama and Geithner think the solution is creating a false, inflated market for these bad investments. "They've lost sight of what it was really about."
Asked specifically how he thinks Geithner is doing, Krugman said, "I think not so good."
He explained it's better to have a stimulus bill than nothing. Even the plan to deal with these toxic assets is maybe better than doing nothing at all.
"But it's just inadequate," he said. "We've got the greatest economic crisis since the Great Depression and we've got a set of half-measures in terms of economic policy and a general sense that the Treasury Department and Obama think if they can do a little more on the technical side, we'd wake up and realize it's two years ago all over again."
Krugman said the recession might end long before Americans start to feel relief.
"The last recession officially ended in November 2001, but unemployment kept on rising for a year and a half after that," he said. "I see a real possibility that the freefall that we're going through will come to an end later this year, but I don't see a real turnaround on what matters to most people, which is the jobs picture, as far as the eye can see. I don't see where recovery comes from at all in terms of actually starting to become a job-creation economy again."
Krugman has become a bit of a celebrity these days. He is, of course, well-known for his New York Times column, and winning the Nobel Prize in economics didn't hurt, either. But now, he has crept into pop culture.
Circulating on the Internet is a song about Krugman, of all people. Yes, Jonathan Mann is on a mission to post one original song and video every day to his Web site until he's got 100 of them. One of the most recent song topics: Krugman.
"Hey, Paul Krugman, why aren't you in the administration? Is there some kind of politicking that I don't understand," Mann asks in the song.
"When I listen to you, things seem to make sense," Mann said, adding that when he listens to Geithner -- who he calls a "little weasel" -- "all I hear is blah, blah, blah."
So, what does Krugman think of the song?
"I found it a little horrifying. My wife thought it was terrific," he said.
As for Mann's criticisms, Krugman said, "I've got a voice" and that Geithner and White House Economic Council chairman Larry Summers read what he writes.
"The buck stops with Obama. He makes the decisions. In a way, I think I've got as much input as anyone can reasonably hope to have," Krugman said. "I'm rooting for him. I hope I'm wrong in being pessimistic about this plan."