Wonk Room » Roubini: Even If Geithner’s Plan Works, It Won’t Work

Roubini: Even If Geithner’s Plan Works, It Won’t Work

By Pat Garofalo on Mar 26th, 2009 at 4:05 pm

Roubini: Even If Geithner’s Plan Works, It Won’t Work

NYU professor Nouriel Roubini — who earlier this week expressed some lukewarm support for Treasury Secretary Timothy Geithner’s bank rescue — said today that even if the plan is successful, it won’t solve our banking problem or dispel the need to nationalize insolvent institutions:

In my view you can apply the Geithner plans to the banks that are solvent, but illiquid and undercapitalized. But you can not apply them to banks that are insolvent. So first you have to do a stress test, and then figure out through a triage the banks that you should rescue and those you should take over. So I’m still of the view that some banks are going to have to be nationalized, and for them the plan does not apply.

Watch it:

As The Economist put it, “if America wants to avoid the fate of Japan in the 1990s…it is vital that its banks face reality“:

Done rigorously, the stress tests could force the banks to come clean about their balance-sheets and lead to the forced sale of assets into the government’s toxic-asset programme. If a bank cannot raise the capital to offset its losses, it should be deemed insolvent and temporarily nationalised. Mr Geithner’s proposal is part of a process that could lead to more certainty — even healing — in America’s banking system. But only if he has the gumption to turn his half-plan into a whole one.

Comments
3

3 Responses to “Roubini: Even If Geithner’s Plan Works, It Won’t Work”

jps Says:

Off-topic: Is there any hope for card check/EFCA now that Specter flipped? There must be some horse that some GOP senator wants to trade. It should have been in that earmark omnibus bill….
March 26th, 2009 at 7:49 pm
joe lanza Says:

Professor Nouriel Rubini of NYU does present a logical solution to the financial meltdown that not only is humane but has been successfully employed by FDR during the 1929 Great Depression:

Nouriel Roubini’s plan for Recovery as he stated on the Charlie Rose interview recently was to bailout the homeowners first with government funds, reduce the face value of homes foreclosed on, refinance those homes at a lower monthly mortgage rate affordable for home owners and extend the length of time of the mortgage; this would give the banks liquidity, remove the TOXIC home loans from bank inventories and stop the down spiralling of home values and boost the economy with banks now having the liquidity from the home owners saved from foreclosure and would losen the bank credit.

And Rubini could also be an excellent replacement of the Wall Street darling, Timmy.
March 29th, 2009 at 2:16 am
arlene kucan Says:

There is something about the SINCERITY in his voice that draws me to his every word.
April 21st, 2009 at 1:35 pm