Nouriel Roubini, the economist of the moment, in the WSJ this weekend:
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.
"Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step."
Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that "we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.
Read on to get his judgment on Alan Greenspan and the blindness of free-market idolatry:
What exactly is Nouriel Roubini's economic philosophy? "I believe in market economics," he says, with some emphasis. "But to paraphrase Churchill -- who said this about democracy and political regimes -- a market economy might be the worst economic regime available, apart from the alternatives."I believe that people react to incentives, that incentives matter, and that prices reflect the way things should be allocated. But I also believe that market economies sometimes have market failures, and when these occur, there's a role for prudential -- not excessive -- regulation of the financial system. The two things that Greenspan got totally wrong were his beliefs that, one, markets self-regulate, and two, that there's no market failure."
How could Mr. Greenspan have been so naïve, I ask, hoping to get a rise. "Well," says Mr. Roubini, "at some level it's good to have a framework to think about the world, in which you emphasize the role of incentives and market economics . . . fair enough! But I think it led to an excessive ideological belief that there are no market failures, and no issues of distortions on incentives. Also, central banks were created to provide financial stability. Greenspan forgot this, and that was a mistake. I think there were ideological blinders, taking Ayn Rand's view of the world to an extreme.
"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."
If men were angels, we wouldn't need government.
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""we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail."
False. These banks started with One employee. Just like any other company, they were allowed to grow "too big to fail", which is just an excuse to shift responsibility. This is entitlement at its worst.
Nationalizing our financial system is a despicable idea that has Franklin, Jefferson, and all the other prominent faces of our currency turning over in their graves.
The central bank would have them spinning in their graves. Of course allowing women the vote might have spun them too...
Before we start casually tossing around the notions of "nationalizing the banks" and "tossing out the shareholders", we need to consider just who those shareholders are. I'm told that quite a few of them are pension funds, retiree-health-care funds and the like. I'd wager that some of them have many hundreds of millions in Citigroup or BoA stocks. (If I'm wrong, I'm willing to be educated.) If they're booted, what happens to them---and more importantly, what happens to the people relying on those funds for their retirements ? They could be devastated.
Another thing we should consider is this: once the politicians get hold of equity stakes in the great banks, just how likely is it that they are going to let go of them ? These institutions, like most largish firms, are heavily tied up with the political classes NOW. Does anyone here really think that the current crop of Happy Monkeys are going to surrender the reins of influence at these firms once they are returned to whatever semblance of solvency they will get to ?
Sure, Obama/Biden, Leahy, Pelosi and Co. talk a good game----but based on the past performance of the Throne City political class, anyone who buys what they're saying is taking the short end of a bet.
Your servant,
Lord Karth
I Would like to share some of my views on averting this world crisis. The views may sound crazy, but anyhow it may be useful in the situation when the whole world is going crazy and unable to decide what to do.
Suggestion :
Get Back to Basics - Rewind the whole financial system worldwide - Convert Complex system back to Traditional & Simple system
15 Point Plan to be implemented worldwide
World Bank, IMF, WTO, Country Leaders convene a meeting and declare Worldwide Financial Emergency to which all countries should immediately agree. Put this for a month.
Stop equity, currency and commodity trading for next 1 week or 2 weeks or 3 weeks or 1 month for the whole world market until the following work is accomplished. This will stop the fear and the money vanishing out of the system.
Ask all large organisations worldwide - Financial Investment Institution, Banks, Insurance and Mortgage companies to immediately check their accounts and become 100% transparent in exposing their company situations as well as the complete situations on their client portfolios to this world body
Immediately draft a plan in which $700 Billion or more money to be injected according to the risk of the companies involved in each country by their respective government. All comnpanies certain percentage of the risk to be covered, so as to save most of the companies.
Immediately help the mortgage borrowers with some support from Government. Take into account the actual asset value.
Stop new mortgages for a month till all the current and old ones problems are sorted out.
Nationalise the Banks with major stakes in many of the large banks. They can be privatised back once they are in good shape
Immediately close or absorb highly debt ridden Investment firms, Banks, Insurance companies, Mortgage companies, however safeguard the clients money by paying from the governments pockets.
Revalue the Currencies and their exchange values worldwide after taking into account all the losses worldwide, so that currencies doesn't become junk currencies.
Make strict policies for Banks not going in to high risk investment portfolios. Banks should remain as banks safeguarding the interest of every individual. They should not be allowed to gamble on stock exchange.
Insurance companies should return back to their traditional policies and safeguard the lives and money for which they were born. Stop investment linked policies during current situations.
Bank should stop provident funds to be linked to investments and go back to traditional methods for which they were born, so that every individual have enough money to support their old age.
Let all banks have reserve ratio of 10% so that world crisis is averted by utilising these funds.
Reduce the payouts levels for all top level executives. Worldwide let all the executives earning above certain level forgo their 1 months salary and the whole pool of this money be used by the government for bailout
Put lot of limitations or restrictions on Stock Exchange Trading - on System as well as Traders, so that trading is done based on proper earnings of the company. It should not be allowed to trade beyond certain eps times.
All the above will help to avert current crisis as well as creating a safe financial environment for many decades to come.
Once again, this is NOT the fault of the free market. This is the result of an UNFREE market. The Federal Reserve created this problem and now they're trying to solve it by giving the patient more of the poison that made it sick in the first place - cheap money. We don't HAVE a free market in this country. We have a mixed, corporatist, Keynesian economy at best.
The free market is NOT failing. The free market is WORKING by resetting prices to rational levels, given the mix of assets and risk in the macroeconomy.
Get it right, people.
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