Dr. Doom: Nationalizing Banks is 'Market Friendly'

Yahoo Finance ^ | 2/24/09

[marshmallow]

Nationalizing insolvent US banks is the best solution to avoid a Japan-like scenario in which 'zombie' financial institutions would eat up public resources while the US economy would teeter on the brink of depression, Nouriel Roubini, economics professor NYU and chairman at RGE Monitor told CNBC Tuesday.

Bank shares have fallen on news of abysmal losses and on fears that governments across the world would step in and wipe shareholders out, dragging global stock markets down, but temporary takeover by the state of the sick institutions will insure the survival of the system, Roubini said.

"The market friendly solution is temporary nationalization," Roubini told "Worldwide Exchange".

"Doing something surgical and radical actually may improve the market sentiment," he said. "If we don't do it, we risk ending up like Japan, that had zombie banks for a decade," he added.

Furious banking consolidation that took place in the years preceding the crisis has made matters worse, as it had created banks that were too big to fail but also too big to save, according to Roubini.

The US government has already provided between $7 trillion and $9 trillion in explicit or implicit support for banks, and taxpayers would actually benefit from nationalization, as they wouldn't have to bail out shareholders as well, he said.

"If you don't nationalize them on a temporary basis the fiscal commitments will be bigger," Roubini said. "The alternative is actually a dangerous debt spiral. We risk ending up in a near depression for the US and the global economy if we don't take this radical action as necessary."

Taxpayers could even make a small profit when the nationalized banks will be privatized again, he said.

AIG (NYSE: aig), which is seeking more government cash after getting ready to report a $60 billion loss, the highest in.......

[marshmallow]

You claimed trillions. That would be more than one. So what's the real number? ?

Yes I did.

I blindly assumed that TARP I (~$700-800 billion) plus Son of TARP (~$800 billion) allowed me to use the term "trillions."

Now skewer me for not saying "hundreds of billions". An unforgivable exaggeration.

[Toddsterpatriot]

I blindly assumed that TARP I (~$700-800 billion)

I hadn't heard that the second part had been spent yet. You claiming it has?

Now skewer me for not saying "hundreds of billions". An unforgivable exaggeration.

Well, if you're just going to pull numbers out of the air.....

[marshmallow]

I hadn't heard that the second part had been spent yet. You claiming it has?

It hasn't. My error was in using the term "spent" loosely. It's been allocated. However, whether the money has been merely allocated or actually spent is irrelevant to the point I was making to Jason who was/is claiming that nobody is helping the banks for fear of populist anger.

My point is that over a trillion dollars (whether allocated or spent) certainly qualifies as "help".

Well, if you're just going to pull numbers out of the air.....

Funds either allocated or spent in current and previous rescue packages amount to over a trillion, no?

[JasonC]

I am.

And ad hominem arguments are the lowest socialist fallacy imaginable.

[marshmallow]

"Ad hominem"?

That's a stretch.

I'm just curious to know whether you really believe this "the banks are fine" shtick you're always selling.

[JasonC]

I do, up to the proviso the idiot populists are still calling way too many shots and can wreck as much as they are allowed to wreck. Therefore, buy the seniors with your principle and the common with your interest and dividends.

I closed on a property January 30. 6 figures. I levered up to do it. That is the only reason I haven't bought the banks to the tune of 5 figures since November - that transaction has been my whole "line". I am deliberately going long with leverage at these prices and terms. By maybe May I could be back in a position to add to financial assets.

In case everybody just forgot, the underlying cause of the whole thing is overvalued real estate and mortgages written against it. I am buying bank owned property in some of the hardest hit, but to my mind beautiful and promising long term, areas of that market. I don't need to flip anything, I can hold it forever.

This too shall pass. And those who are brave today will reap the rewards.

[marshmallow]

Good luck.