Roubini Says Geithner Plan Won’t Prevent Bank Nationalizations

[Better Believe It]

Roubini Says Geithner Plan Won’t Prevent Bank Nationalizations
By Simon Kennedy and Maithreyi Seetharama
Bloomberg
March 26, 2009

U.S. Treasury Secretary Timothy Geithner’s new plan to remove toxic assets from the books of the nation’s banks won’t stop some financial companies from having to be nationalized, said Nouriel Roubini, the New York University professor who predicted the financial crisis.

Roubini, 50, echoed criticism from Nobel laureate Paul Krugman that the proposal will not be enough for those banks that are insolvent and predicted that ultimately the government will have to take over more of them. He didn’t name which companies he thought would need to be rescued.

“Some banks are going to have to be nationalized and for them the plan doesn’t apply,” Roubini said in an interview with Bloomberg Television in London today.

The government is conducting stress tests of banks to determine how much more capital each will need. Roubini said once those were completed it will be evident that some banks will need to be taken over and have their good and bad assets separated before being returned to the private sector.

Please read the complete article at:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZXiD0hnsSD8

[ProSense]

1. Roubini is correct

The government is conducting stress tests of banks to determine how much more capital each will need. Roubini said once those were completed it will be evident that some banks will need to be taken over and have their good and bad assets separated before being returned to the private sector.

Geithner’s Plan

Critics of Geithner’s plan including Krugman, a professor at Princeton University, say the government should take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities. Sweden adopted the temporary nationalization approach in the 1990s.

Roubini, who also runs his own economics consultancy, estimates a total of $3.6 trillion of loan and securities losses in the U.S., including writedowns on $10.84 trillion of securities and losses on a total of $12.37 trillion of unsecuritized loans.

With “deflationary forces” lingering for as long as three years, Roubini said U.S. government bond yields were going to remain relatively low and that American house prices would fall as much as 20 percent more in the next 18 months. While the dollar will benefit as investors seek safe havens, it will ultimately decline as the U.S. trade deficit has to shrink, he said.

The need for governments to issue more public debt to fund stimulus and bank-rescue packages risked more downgrades to sovereign debt and the failure of more government auctions as happened in the U.K. yesterday, Roubini said.

Administration unveils financial system overhaul

[backscatter712]

2. Yep. It makes nationalization easier down the road.

It gives the Obama administration political cover - they can say "We tried the conservative methods first, but they're not working." They help save the borderline banks by giving them an path for orderly disposal of toxic assets, so we don't nationalize something that doesn't really need it. And they give an excuse to subject all the banks and financial businesses to more .gov scrutiny - stress tests, for example, so we have a better idea of the scope of the problem and how to deal with it.

I've always been under the impression that Obama has a larger plan in mind. The Geithner plan is just a stepping stone.

[xchrom]

3. recommend

[HopeOverFear]

4. this is a good thing, right?

right?