Brendan Moody wrote:
I'm not sure Balon's decision was all that stupid. Putting aside the fact that the military aspect of his plan was much more easily achieved than what Robb wanted him to do, Robb's alliance scenario depended on the Lannisters (or whichever southern contender eventually triumphed) accepting the loss of the North, the riverlands, the Iron Islands, and at least part of the Westerlands. Balon's plan, on the other hand, involves the Seven Kingdoms losing "only" the Islands and the North. Still a bitter pill, but overall an easier one to swallow. Tyrion is at least not immediately opposed when he receives the offer (which, by the way, initially comes before the Battle of the Blackwater, not after). And later, Tywin's response to it is not rejection but to wait and see, because he has the Red Wedding in the planning stages. Balon's plan ultimately failed more because of that unlikely development, and because of later action by Theon (whose insistence on holding Winterfell and "killing" Bran and Rickon turned the North violently and permanently against the ironborn) and Euron (whose murder of Balon and claiming of the throne required Asha and Victarion to withdraw their occupying forces and attend the kingsmoot), than because it was flawed in conception.
Tywin didn't immediately reject it because there was no point in allying with Balon when he was already serving their interests by fighting the Starks, so best not to discourage him. The Lannisters are committed to ruling all the Seven Kingdoms. Once Robb is dealt with, there's no reason whatever to believe that they won't turn around and crush the Iron Islands too, which is easily within the power of the mainland forces, as was proved a decade earlier. Moreover, the Ironborn are a hostile power whose whole culture is based on reaving -- no holder of the Iron Throne would leave them independent for long.
Balon's plan isn't more militarily feasible, either, from a long-term perspective. Theon's taking Winterfell wasn't part of his original design, so his original plan of attack was basically to seize the two westernmost fortresses in the North (Deepwood Motte and Torrhen's Square) - Winterfell and the northern and eastern forts (Last Hearth, Karhold, the Dreadfort, White Harbour, etc.) were to be left unmolested, and even the modest forces assembled by the Dreadfort garrison were more than sufficient to retake Winterfell. Particularly when winter comes, there's no viable long-term strategy for holding only a couple of the north's eastern fortresses against all the rest, let alone making the whole country submit.