An Interview With Nouriel Roubini: Nationalizing Banks Is Market-Friendly
Interesting WSJ interview with Nouriel Roubini, the man who saw the crash coming and tried to sound the alarm:
"Again, I don't want to personalize things, but the last decade was one of self-regulation. But in the financial markets, without proper institutional rules, there's the law of the jungle -- because there's greed! There's nothing wrong with greed, per se. It's not that people are more greedy now than they were 20 years ago. But greed has to be tempered, first, by fear of losses. So if you bail people out, there's less fear. And second, by prudential regulation and supervision to avoid certain excesses."
How does Mr. Roubini think the media has covered the financial crisis? "The problem," he says -- after first stating to me that he intends "no offense!" -- "is that in the bubble years, everyone becomes a cheerleader, including the media. This is the time when journalists should be asking tough questions, and I think there was a failure there. The Masters of the Universe were always on the cover, or the front page -- the hedge-fund guys, the imperial CEO, private equity. I wish there had been more financial and business journalists, in the good years, who'd said, 'Wait a moment, if this man, or this firm, is making a 100% return a year, how do they do it? Is it because they're smarter than everybody else . . . or because they're taking so much risk they'll be bankrupt two years down the line?'
"And I think, in the bubble years, no one asked the hard questions. A good journalist has to be one who, in good times, challenges the conventional wisdom. If you don't do that, you fail in one of your duties."
[...] Mr. Roubini tells me that bank nationalization "is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] -- i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector -- it's clear that it's temporary. No one's in favor of a permanent government takeover of the financial system."
There's another reason why the concept should appeal to (fiscal) conservatives, he explains. "The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks."
In any case, Republicans must now temper their reactions, he says. "The kind of government interference in the economy that we saw in the last year of Bush was unprecedented. The central bank -- supposed to be the lender of the last resort -- became the lender of first and only resort! With our recapitalizing of financial institutions, and massive government intervention in the markets, we've already crossed a significant bridge."
So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."
That long? I ask. "Six months from now," he replies, "even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.
with which so many seem commentators and commentors view the current crisis.
It seems to me that the dire predictions of the likes of Roubini and others are being studiously avoided in the CorpoRat press. It is of course in their interest to keep the lid on things as long as possible.
Damn it, if there was gonna be a revolution, I wish it had come when I was a little younger...
and you could shoot both barrels of a 16 gauge shotgun into the gathered cluster of bobbleheads and pundits and never hit a single journalist, though you laid the whole flock low...
http://www.moneymorning.com/2009/02/18/us-banks/
"Parachutes are allowed in checked or carry-on baggage, but may not be worn in flight."
---Southwest Airlines
I was a bit shocked earlier this month, when a teller at my branch asked me if I wanted to open a 2nd, free account to have in case something went wrong and I couldn't for some reason access my 20 year old acct. "Huh? If I couldn't access one account here, why would I be able to access acct #2?" I asked. No answer for that.
Now, it's not like I'm anywhere NEAR the 100,000 FDIC insurance limit, I actually get disability from SS directly deposited to my acct. And I spend almost all of it, sometimes more (oops) every month.
My bank? The Zombie BofA. Time to hit a credit union, or US Bank.
me-oww!
Greed is not OK. Greed is being piggish. Greed is putting self above all others. Greed is wanting more than your share. Greed is not just wanting wealth, it is wanting wealth at the expense of others or at the expense of ethics. Greed eventually hurts everyone, even the greedy. Greed is short sighted. Greed is not sustainable and exhausts resources. Greed destroys trust and creates conflict. Greed puts the welfare of those with power above those without. Greed causes imbalance and resentment and hate. Greed causes collateral damage. Greed can lead to aggressive wars and occupation.
Greed kills.
"Life, liberty and the pursuit of happiness . ." in lieu of "Life, Liberty and the pursuit of the common good." Being greedy can make some people very happy.
"Secular humanism -- a fearless, realistic world view replete with doubt and scepticism that attempts to attain an unachievable state of equilibrium between and among the human qualities of reason, intuition, imagination, memory, ethics and common sense.
No shit Sherlock. What's your point?
Roubini's observations about how appallingly the business media dropped the ball are wisely phrased, but I think he understates the problem by several magnitudes.
Judging from what I saw on the floor of the US Senate two weeks ago, when GOP Senators threw hissy fits about the Stimulus Package, the economic literacy of the Republicans is about a 3rd grade level. Ditto the GOP in the House.
The business media contributed to the stupidity we've all seen, and the inanity on CNBC is a prime example.
It wouldn't be Bolshevik in the USA because the Fat Cats are still going to be calling the shots. Roubini, who I like, may not fully appreciate how subverted the sense of purpose of our 'public servants' can be by private interests.
Here in The Nation, Thomas Ferguson & Robert Johnson in Nationalize Failing Banks? Think Twice comment on prerequisite safeguards.
Here Joseph Stiglitz on nationalization.
Here Roubini on additional European problems.
Here in an excellent interview with Amy Goodman is James Galbraith (see his excellent book Predator State) on nationalization and the fraud the banks have been committing.
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Why do we need to nationalize the banks? If we don't we are going to continue to pour money down their rat hole.
The largest banks have a huge amount of CDOs which are not worth anywhere near the 100¢ on the dollar that they would like to claim.
That is the trash they want us to buy with our cash. They may only be 20¢ on the dollar. Whatever they are worth it is a lot less than the banks want.
Their balance sheets are PHONY. If they wrote down the losses they would have to declare insolvency in which case the FDIC would need to intervene.
The Fat Cats are playing it for all it is worth, for all they can get.
If they were nationalized they could lose a lot.
They should lose a lot. A number of them should go to jail.
Here from JESSE'S CAFÉ AMÉRICAIN is a telling article from a year ago showing how much some people knew even then.
statusquObama, change you can only pretend in
"I think that we're going to see the policy adopted in the next few months . . . in six months or so."
It could last six days, six weeks. I doubt six months....
"To me, truth is not some vague, foggy notion. Truth is real. And,
at the same time, unreal. Fiction and fact and everything in between,
plus some things I can't remember, all rolled into one big "thing."
This is truth, to me. "
-Jack Handy
I don't know how many of us want a nationalized banking system, but we certainly want a regulated one.
And I'd have no complaints against treating the government as a stockholder with a vote proportionate to what they own in the bank through bailouts.
Diabolus est Deus Inversus
http://www.dw-world.de/dw/article/0,,4005355,...
It'll be worth it just to agitate Limbaugh and his pals.
"To me, truth is not some vague, foggy notion. Truth is real. And,
at the same time, unreal. Fiction and fact and everything in between,
plus some things I can't remember, all rolled into one big "thing."
This is truth, to me. "
-Jack Handy
I'm just blown away with how evaded, unaddressed this point really is. We're opening Pandora's box for our future but by God we'll save today. It's the elephant in the room everyone pretends to not see.
Goodnight, Frau Blücher
http://seekingalpha.com/article/115573-nation...
"To me, truth is not some vague, foggy notion. Truth is real. And,
at the same time, unreal. Fiction and fact and everything in between,
plus some things I can't remember, all rolled into one big "thing."
This is truth, to me. "
-Jack Handy
That doesn't say either, it talks about recapitalizing without explaining where that money is going to come from. I like Nouriel Roubini (I get his RGE Monitor's Newsletter), but he like Krugman never attempt to explain where we are going to get the money to do all this stimulating. There is however, a lot of talk about what they can do to the institutions and the levers they can pull.
If there has been one point I have driven onto the ground it is this. Anyone for this stimulus avoids the fact we have no money at all costs because they know we are going to borrow it assuming we can get China to loan it to us, a dangerous assumption to make at this juncture.
In the depression we held the debt of nations and were the leading exporter, today the exact opposite is true. Our only hope to stimulate the economy is to go further out on a long heavily weighted limb of debt and add more debt and HOPE we can pay it down somewhere in the future. What are we at now almost $15 Trillion? The number is moving up so fast it gives me whip-lash.
In a few years we are going to be in real deep shit as result of what we’re doing today. It’s blatantly obvious. It’s just as obvious as the housing market was facing a crash in 2006. You didn’t need to be an economist to see people’s incomes averaging 8% increases and homes averaging 300% and 400% increases was going to end very badly.
Today’s scenario is even clearer. When Bush took office we had roughly $5.6 trillion in national debt. Two wars and 8 years later for the first time in our history not only did we did not raise taxes to fight the war; we actually lowered them! Instead we chose to rely solely on deficit spending resulting in a $10 trillion debt by 2007. Idiocy was abundant under Bush.
Pete Stark understood how stupid it was and called Bush and the rubber-stamp GOP out on this.
http://www.youtube.com/watch?v=5xa5A5yW21I
Our national rapport and credibility have been stretched to its limits with these events alone, but then we ignored the warning signals from China about reckless borrowing again and again. We took solace in the notion they can’t easily place their money elsewhere except our dollars. We stupidly have used this temporary fact as a pillar of strength instead of recognizing it for what it is; a time bomb in our lap.
Enter our huge stock market crash resulting from unchecked asinine lending practices, and once illegal stock market side bets as a result of the 106th’s Congress unanimously passing the Commodity Futures Modernization Act of 2000. That paved the way for derivatives and a bogus insurance called credit default swaps without any backing.
Our grand solution?
More deficit spending (a.k.a. more borrowing) but this time it’s for a better cause, all the reasons are good, but whatever you do, just don’t call it spending. No let’s call it investing in our infrastructure, stimulating our economy, creating jobs, getting the economic engine churning again. All the while no one ever spells out what tangible positive cash flow returns is going to result from this investment except better things and more jobs. Call it what you like the fact is the 3 monkey’s blind to evil are out in full force now.
We have forgotten the lessons our grand parents who lived through the depression taught us. If you don’t have it, you don’t spend it. No one dares to admit America is insolvent, that the time has come to tighten the belt, pay down our debt and live within our means. No we’re looking for any reason that sounds good now to double or nothing our debt and hope we can spend our way through it. But, but people are out of work, there is suffering going on, is the common reason. Yes there is, and we are going to experience even worse suffering and hardship after were done investing in our infrastructure and there is no money left to borrow.
Goodnight, Frau Blücher
I think I read somewhere that the Fed thinks that they can raise interest rates in time to prevent inflation from taking hold. I think it aint gonna work.
All of the central banks are printing money. Except for China.
There is an enormous amount of money that has been lost.
The question is who will be left holding the bag. Who will lose the most.
This is a class war. So far the working class are losing.
statusquObama, change you can only pretend in
and not very fair at that.
Goodnight, Frau Blücher
""The problem," he says -- after first stating to me that he intends "no offense!" -- "is that in the bubble years, everyone becomes a cheerleader, including the media. " No offense??? Why does a knowledgeable professional think that he has to preface his comments with the PC, innocuous "no offense" line?? How about " . . and those who committed the crimes (e.g., those who rated the derivatives as AAA) should be charged and tried . . .etc., etc.?" No need for an apology with that aside.
"Secular humanism -- a fearless, realistic world view replete with doubt and scepticism that attempts to attain an unachievable state of equilibrium between and among the human qualities of reason, intuition, imagination, memory, ethics and common sense.
The fraud is enormous.
The likelihood of insider trading on the brokering of defective mortgages, the fraudulent rating of the CDOs and purchasing of related Credit Default Swaps seems clear cut to me.
Anyone who worked the chain is racketeering.
Why wasn't Lehman surrounded with yellow tape when they went down. And treated as a crime scene.
It is beyond belief.
There are a few economists answering the call. James Galbraith, William Black, Michael Hudson come to mind first.
statusquObama, change you can only pretend in
Whoa, I guess you missed the last train to Crazytown.
Because filing for Chapter 11 isn't a crime.
And in America, it takes more than "the likelihood" of cartoonishly vague insider trading and fradulent practices claims "seem[ing] clear cut" to charge someone with a crime. (There's no such crime as "fraudulent rating," BTW.)
Repeat after me: Making a bad investment isn't a crime. It's true, I swear.
The bank bailout is unfair. But how so many people can immediately make the jump from "unfair" to "criminal" is beyond me. Maybe unfairness is a crime in Crazytown, but it's not in the U.S.
William K. Black
By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City.
William K. Black here excerpted:
James Galbraith re fraud here.
Michael Hudson re fraud here.
Misrating is misrepresentation, obtaining money under false pretenses, ie fraud, Bloomberg here
and Bloomberg here.
OBTW - Fuck yourself.
statusquObama, change you can only pretend in
I think it's past time for FDIC to take audits of Shitty bank and Skank of America (Bill Maher)) and take them over if they're insolvent.
I think the current approach is throwing money down a sinkhole. The bad assets haven't been audited, so we're throwing money at a problem we don't have an idea of the scope of. I think James Galbraith is substantially correct.
Obama and Gartner ideologically oppose government takeover, but I don't hear anything fact based for the opposition. I think the sooner we face this matter, the sooner we'll get credit flowing again.
"Again, I don't want to personalize things, but the last decade was one of self-regulation. But in the financial markets, without proper institutional rules, there's the law of the jungle -- because there's greed! There's nothing wrong with greed, per se. It's not that people are more greedy now than they were 20 years ago. But greed has to be tempered, first, by fear of losses.
-------------------
The Greenspan Put. Every time the market got in trouble, Greenspan stepped in and supported markets artificially. Thus risk was mispriced. Bailouts mispriced risk. Creating a housing bubble, to replace a stock bubble, mispriced risk. Everybody cheered when Greenspan stepped in to support the market. By stepping in to artificially support the market, Greenspan did the wrong thing.
When Greenspan gave his irrational exuberance speech, the stock market dropped. When the market figured out he wasn't going to raise interest rates or raise margin requirements, the market continued to jump higher. When Asia got in trouble, Greenspan dropped the rate. This blew the top off the Nasdaq and caused the roaring late 90's boom, as Americans became the consumers of last resort, to bail out Asia. When the boom went bust, Greenspan generated a housing bubble, to prevent the necessary economic correction- a deeper recession that occurred in 2001, and a lower stock market, that probably should have dropped to 5,000 on the DOW.
The Fed works for us. The cost of their services is too high.
Since 1913, the primary function of the Fed was to say to everyone involved in Banking, “Don’t Panic!” But panics happened.
The secondary function of the Fed was to expand and collapse available currency in response to asset bubbles, in order to smooth out recessions. But recessions happened.
A final function of the Fed, under the Board of Governors, was to insure solvency of member banks by limiting loans by those banks to those with the ability to pay. But the Board of Governors was complicit in the greed-induced frenzy of the house bubble – bad loans and all.
Greenspan, in his enthusiasm for free-market, over-corrected for years, slashing interest rates to the point that the second function of the Fed isn’t even feasible any longer.
The Federal Reserve has failed. Their reason-d’être no longer applies.
And…
The cost of their services, interest on every single dollar they control, we can no longer afford.
They failed at their job. They’re services are too expensive. I say, “YOU’RE FIRED!”
they are p*ssing around, and tossing around ideas from economist to economist, most of the world will be impoverished starving homeless before anyone does anything. Money is just a g-damn piece of paper right now that means little. There is no comparison ever in recent history including the Great Depression, to what is going on in the world right now. This entire financial scheme is over and done. Will the last expert economist please turn out the lights when they are done yapping.
If we were in the position the bankers and politicians were in for the last decade, would any of us be so willing to give the stench of power up? Human nature. We fear what we don't understand and change in mega doses is anathema to our senses.
Roubini and a few others saw the freight train coming but D.C. and Wall Street looked the other way until the inevitable was upon us. Dr. Nancy Kubler-Ross wrote the book " On Death And Dying", and outlined the stages we as humans face when confronted with our own end. We are now leaving the depression stage and acceptance is upon us.
Roubini saw what we couldn't imagine. That being that the banks that make up the composition of the Federal Reserve, were bloated, over extended and headed for insolvency. What is a sovereign government to do? That is where we are at this moment in time and the die has been cast.
Personally I don't fear nationalization whether temporary or permanent and hopefully the latter because this was the gift that the founders gave us. A money system that was controlled by we the people not a run for profit system that could easily be lead astray by those who would take advantage all in the name of profit for the few at the top.
Those complaining the loudest like the talking heads on CNBC fear for their friends in the hallowed canyons of Wall Street. No more golden parachutes, private jets, spa junkets or hundreds of millions in bonuses paid for a job well done. Now they will have to answer to a higher authority. We the American people.
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