By Ben Cohen
Nouriel Roubini (aka ‘Dr Doom’) says the U.S must nationalize the banks if the government wants to avoid a 1930’s style depression as in basic terms, they owe more money than they are worth:
Two important parts of Geithner’s plan are “stress testing” banks by
poring over their books to separate viable institutions from bankrupt
ones and establishing an investment fund with private and public money
to purchase bad assets. These are necessary steps toward a healthy
But unfortunately, the plan won’t solve our financial woes, because
it assumes that the system is solvent. If implemented fairly for
current taxpayers (i.e., no more freebies in the form of underpriced
equity, preferred shares, loan guarantees or insurance on assets), it
will just confirm how bad things really are.
Nationalization is the only option that would permit us to solve the
problem of toxic assets in an orderly fashion and finally allow lending
to resume. Of course, the economy would still stink, but the death
spiral we are in would end.
Should we listen? Well, yes. Roubini has been right pretty much all along. As he points out:
Last year we predicted that losses by U.S. financial institutions would
hit $1 trillion and possibly go as high as $2 trillion. We were accused
of exaggerating. But since then, write-downs by U.S. banks have passed
the $1 trillion mark, and now institutions such as the International
Monetary Fund and Goldman Sachs predict losses of more than $2
Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.