Nouriel Roubini: Only Way To Save US Banking System Is To Nationalize It

Washington Post:

The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.

As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.

Read the whole story: Washington Post

Comments

[rebjef]

03:28 PM on 03/04/2009

...continued

Push reset, shut it off, let it reboot. The world economy is gagging on debt. There will be no heartbeat if breathing cannot be normalized immediately.

I am calling for Universal Debt Forgiveness. Any and all past debt must be completely abolished! This is a remarkably easy thing to do. It requires no bailouts, stimulus plans, or accountability of billions (trillions?) of pieces of green paper. With fractionalized banking, and the Fed's double entry accounting procedures, anything is possible in the world of money and banking. There really are no rules...because it's ALL MADE UP anyway!

So, the most immediate and simplistic course of action is to create (out of thin air...sound familliar?) new "account books", which show a zero balance for all. Wipe away the tears and the debt simultaneously, and let's embark on a cooperative journey that will unveil a simpler more prudent disciplined lifestyle that will pump new life blood into the living organism called mankind.

This is the first step. The power of FORGIVENESS cannot be underestimated! The peace, harmony and goodwill created on a global scale would be unprecedented and would lay the foundation for an atmosphere of partnership and cooperation going forward. The elimination of debt would minimize or put an end to the FEAR that is paralyzing the world, and open up the door to a brand new day, and the promise of "securing the blessings of liberty to ourselves and our posterity".

Jeff Johnson
[e-mail]

[familydamato]

11:01 AM on 03/09/2009

Stop the taxpayer bailouts – encourage individual investors!

Let the American middle class invest in AMERICA! Encourage Americans to use their retirement funds to buy autos made in America and foreclosed homes. As an incentive and to make up some of their Wall Street losses, do not tax these retirement funds.
Instead of our country going further into debt, why not encourage Americans who are 50 or over to buy autos made in the USA? Set a cap of $35,000 tax free for autos. For foreclosures, set a cap of $450,000 and requirement that the home must be kept 3 years (to avoid flipping).

The only requirement for using tax free retirement savings to purchase autos and foreclosures?
MUST PAY IN CASH - NO LOANS- NO MORTGAGES – NO FOREIGN DEBT!
Within 12 months, the financial crisis would be over, our retirees would recoup some of their Wall Street losses and we keep our capitalist system.
Benefits include:
1. Vacant foreclosures disappear.
2. Banks get cash for these foreclosures (a/k/a toxic assets) and can extend consumer credit.
3. The auto industry receives much needed cash and becomes solvent.
4. Neighborhood blight decreases as previously vacant homes are repaired and maintained. The building tradesmen are kept working.
5. Home values increase.
6. Consumer confidence increases as the financial crises decreases.
7. The United States does not have to take on more foreign debt.
8. Taxpayers do not have to absorb the cost of borrowing.

[rebjef]

03:25 PM on 03/04/2009

As the saying goes, a chain is only as strong as its weakest link. Globally, the current "economic tsunami" (as Alan Greenspan calls it) is THE weak link in a very connected chain of life that is sending waves of transformation and change that will permanently alter the way in which we all think and live.

While very challenging, the opportunity before us opens up endless possibilities! We are recognizing that as a species, we are "entangled", as the quantum physicists would say. We truly are one living organism, and as such, cannot be whole unless all of the individual parts are functioning as intended.

For this to become a reality, cooperation is mandatory. Historically, the economic landscape has produced a few "haves", and a vast majority of "have nots". Presently, we are at the precipice of a few "haves", and a vast majority of "have NOTHINGS"! This is not a viable option for either party, for the "haves" can't profit off of the "have nothings".

Unless radical change occurs, the goose that lays the golden eggs is going to die. The elite "money families" of the world have a decision to make. Do we let the goose die and get no more eggs, or let it rest, regain its strength, and ultimately start producing again?

It is time to push the reset button. The computer is frozen. Hitting it, yelling at it, or even throwing money at it will not change its status.

TBC

Jeff Johnson
[e-mail]

[Luvial]

04:40 PM on 02/15/2009

Maybe it is time for the Democrats (since they are writing the laws now) to ban political contributions to memebrs of Congress by corporations that take TARP handouts. Is that asking too much?

[Doofus]

03:53 PM on 02/15/2009

It's been pointed out, I think, that the market capitalization of the big banks
is relatively low right now, in comparison to their debts, so 'nationalizing'
them, which no doubt means *buying* all the outstanding shares, if the
Repos are not even going to strenuously object to that, is not such a bad
deal for the owners. You weren't thinking the government would just seize
the assets, were you?

If we're going to just print money, we might as well use it to buy banks.

[jazzman]

03:44 PM on 02/15/2009

Does Obama represent a new kind of politics that isn't controlled by special interests? We'll soon find out. This is the issue that will show us whether Obama means business or whether he's just another politician being controlled by Wall Street. There are too many voices now calling for some kind of intervention or nationalization to save this economy. If Obama is content to leave the status quo in place we won't get change it will make matters worse. What's more the Republicans will finally have their issue.

[Rule Of Law]

01:23 PM on 02/15/2009

I have always admired Roubini's prescient understanding of this dilemma. However, if no rules are in place to first; fire every top exec at every bank that is nationalized and expel them forever from the industry; and second, if we do not return to strict controls and regulations (and unless I missed this part, Roubini did not address it here) that limit banks in size and geography, just as they and the media used to be, that prevent them ever again from mixing banking with other financial services or growing beyond set boundaries, then I'm not on board.

[noesis]

01:52 PM on 02/15/2009

This was my main concern as well. The issue of breaking the banksters power is addressed by MIT economist Simon Johnson in his latest blog entry, High Noon: Geithner v. The American Oligarchs.

http://baselinescenario.com/2009/02/08/high-noon-geithner-v-the-american-oligarchs/

[Rule Of Law]

02:05 PM on 02/15/2009

Great site, thanks.

"How can you do it? The answer must be by splitting this powerful interest group into competing factions, and taking them on one by one."

Break them all up! If we won't let them fail outright, at least completely destroy the system they've built, and make sure that it never gets re-built. Then just to double make sure, pass laws that prohibit corporate lobbying, period!

[MagisterLudi]

12:26 PM on 02/15/2009

Both parties are under control of companies they're pretending to regulate. People's interests will be betrayed on the way to nationalization.
When Republicans come to power again they'll immediately sell off nationalized assets. And american people will get a raw deal yet again.
The question is simply how to keep it together through the downturn without giving away the proverbial store.

[Rule Of Law]

01:08 PM on 02/15/2009

And we already know who will buy them--and my guess is that the price has already been set, as well! And that within a few years, consolidation will give us the same too big to fail behemoths we now have.

[somsoc]

11:41 AM on 02/15/2009

Our banks have gotten to big to fail, and too big to be private and run for private gain. It is time we nationalized the major banks. They are all insolvent and we cannot afford to bail them out and take a chance on their laissez faire high risk management style anymore. It is time we woke up as a nation and grew up.

[Yermammy]

04:35 PM on 02/15/2009

I always knew Lazy Fairy economics wouldn't work without someone with a stainless steel truck antenna whipping the cheaters on the back of the neck.

[BaileyWo]

11:33 AM on 02/15/2009

Sen. Lindsey Graham just said essentially the same thing this morning in a George Stephanopolis interview.

[timberdoodle]

11:25 AM on 02/15/2009

Unfortunately most Americans have been conditioned to view the word socialism as something to be feared and avoided at all costs. Most don't know what this term means for how it works which justifies the old adage man is man's worst enemy.

The fact is there are some services that absolutely require their being nationalized including banks and health care. There are plenty of other types of businesses that can sink or swim in the free market system but the necessities like banking and health care are not two of these.

[somsoc]

11:43 AM on 02/15/2009

I disagree, we, Americans proved long ago that "ignorance", the fear and loathing of education is our national religion and our worst enemy. But your idea is correct.

[judesedit]

11:00 AM on 02/15/2009

I tend to agree. These CEO's and bank presidents are totally irresponsible, incapable, greedy, and untrustworthy. Time for the government to take charge of this situation. The banks can always be privatised at a later date with better regulations. Why should we reward these charlatans for their tremendous failures?

[frappe]

10:58 AM on 02/15/2009

I think he's right. We should nationalize the banks on a temporary basis -- until the problems have been sorted out and stability is restored in the financial system. After all, THIS IS A NATIONAL EMERGENCY!

[HLL]

10:50 AM on 02/15/2009

I wish Mr. Roubini was Secretary of the Treasury. He's been 100% right since Black September, 2008. If it's too late to make him Secretary, than at least President Obama should listen to him and follow his and his fellow economists advice. Taxpayers essentially own the banks anyway. The billions of dollars they are floating on came from us.

Bankers and CEOs have had their lavish, greedy, thieving day. They took investors money, paid themselves hundreds of millions of dollars in bonuses, office re-decoration, private jets and Caribbean holiday packages for their companies, and invested in toxic mortgages. They were reckless and sank this country. We own the banks now, let's just make it official.

[VoiceOmmAfar]

01:12 PM on 02/15/2009

Pretty bad deal though. And that's it - in best of versions? Why is there assumed no accountability please (I missed that class)? Why are not bankers' accounts frozen and taken back escapes me.

[Norge]

10:50 AM on 02/15/2009

No. The only way to save the banks is to let those which did not do their jobs correctly by hedging their bets go into bankruptsie. Theirs' was the height of incompetence and the price for such is not bail out, it is bank-rupture.

[gobarackgo]

10:48 AM on 02/15/2009

The market freaked last week in reaction to the "stress tests" Geithner proposes for the banks. As well it should. Treasury and the administration is signaling that very real steps will be taken to fix this mess. Stress testing will reveal the insolvent institutions. Nationalization/receivership wil follow where necessary (I hope).