Nouriel Roubini: "there really isn't much left to do but nationalize" the banks

[Better Believe It]

Latest Richardson and Roubini Op-Ed in the Wall Street Journal
Nouriel Roubini
February 18, 2009
The Wall Street Journal published today my latest op-ed with my Stern colleague Matt Richardson on why we need to nationalize insolvent banks in order to avoid turning private banks – that have recently received massive government guarantees of their new debts – into another Fannie and Freddie bankrupt monster. And now even Alan Greenspan - after Republican Senator Graham and other Republicans - has come out in favor of a temporary nationalization of insolvent banks.

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Excerpt from Wall Street Journal Op-Ed

Yes, Bailout 2.0 lacks details, but it is clear it won't propose more bank freebies -- no new loan guarantee programs or backstops of losses on their bad assets, or government capital infusions in the form of underpriced preferred shares. Now the banks will have to prove themselves via a "stress test" on their solvency to access new capital. It won't be a pretty picture.

And by the way, if banks want Uncle Sam to buy all those "toxic" assets, the government is now going to do it alongside private capital. These investors aren't going to overpay, so that game is up as well.

Since Mr. Geithner's plan has been unveiled, the stock prices of the financial sector are off about 19%. This is not necessarily a bad thing. The banks were expecting another handout.

While it was not his intention, the reality is that Mr. Geithner is going to confirm the insolvency of the financial system. Once we face this truth, there really isn't much left to do but nationalize.

We are not talking about the government operating the banks for the long-term. But, as was done in Scandinavia in the early 1990s, we are talking about orderly clean up, then reselling the banks to private investors.

The good news is that much of the risk will be borne by the banks' common and preferred shareholders and their long-term unsecured creditors -- as opposed to by taxpayers. This makes sense since shareholders and creditors were the ones who bet on banks in the first place. We'll also stop repeating the mistakes we made with Fannie and Freddie.

http://www.rgemonitor.com/roubini-monitor/255614/latest_richardson_and_roubini_op-ed_in_the_wall_street_journal

[grantcart]

1. I believe this is an effort to transfer wealth from the taxpayer to the bank's bond holder

we can buy the assets of the banks and let the bank bonds fail. If we nationalize the bank the US government will have to honor ever bank bond issued.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8206993&mesg_id=8206993