Dr Doom: Nationalize the Banks. Now.

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

financial sector.

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

trillion.

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.