Nouriel Roubini On The Geithner Bailout Plan: Insolvent Banks Will Still Require Nationalization (CNBC Video March 31, 2009)

The solutions and government interventions that are needed in order to remove the economy and financial system from life support, with Dr. Nouriel Roubini, RGEMonitor.com chairman/NYU Stern School of Business professor and Arianna Huffington, Huffington Post.

Roubini was on Squawk Box this morning and the discussion focused on the Geithner bank rescue plan and eventual nationalization of the insolvent banks.  The above clip runs 8 minutes.

From CNBC:

Economist Nouriel Roubini said he thinks Treasury Secretary Timothy Geithner's plan to rescue America's banks is good, but not a cure-all.

The Geithner plan, among the many ways you can get rid of these bad assets, is one of the better ones," said Roubini, who is the chairman of RGEMonitor.com, in an interview with CNBC.

"It still is not going to solve the problems of those institutions that are effectively insolvent. If you buy the assets at true long-term value, they're still going to be under water, so those institutions will still have to be taken over, worked out, and then, eventually, re-privatized," he said.

Roubini, who has constantly sized up the economic situation with more gloom than most, has not changed his downbeat view

"I'm still more bearish than the consensus," he said, projecting the unemployment rate will eventually top 10 percent before it begins to fall. He said his assumption is consistent with the standards being used by the Federal Reserve in its stress tests of the country's banks.

He said the Geithner plan will work only if it is applied properly.

"You have to apply it to the right type of institutions, those that are solvent," he said. "If you use it instead to deal with the problems of insolvent banks, you are delaying the resolution, and will end up like Japan, with zombie banks."

Comments

[James H]

Roubini has my respect in general, but he is far too naive to have a good handle on exactly what is going on with the PPIP. I can barely read a balance sheet, but this plan works only if these assets are "toxic" because of a liquidity problem. But of course it's not a liquidity problem. The assets just aren't worth what the banks would like them to be worth. Therefore, this plan "works" only if the taxpayer overpays and gets screwed.

[Hulu]

Nice point James: it is not a liquidity issue.