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View Full Version : Economics Nouriel Roubini predicted economic collapse, now endorses Geithner's new plan


jAZ
03-25-2009, 04:09 PM
Interesting guy...

http://en.wikipedia.org/wiki/Nouriel_Roubini#cite_note-NYT-1

In September, 2006, (Nouriel Roubini) announced to a skeptical International Monetary Fund (IMF) that an economic crisis was brewing. "In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession," according to the New York Times.[2] According to the Times, he accurately foresaw "homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt."

http://www.nydailynews.com/opinions/2009/03/25/2009-03-25_give_credit_to_timothy_geithners_new_tox.html

Give credit to Timothy Geithner's new toxic asset plan
By Matthew Richardson and Nouriel Roubini

Wednesday, March 25th 2009, 4:00 AM

For the economy to be viable, the financial system must be healthy. For this to occur, the system needs to be cleansed of its poorly performing loans and so-called toxic securities backed by loans. This way, once creditworthy institutions and individuals come to the market looking for capital to borrow, financial firms will be in a position to lend them money.

Secretary Timothy Geithner's new toxic asset plan is a serious step in the right direction in that it creates a public-private partnership to buy the troubled assets of financial firms - in other words, to do the necessary cleansing. Up until now, with all the government bailouts, the financial system has been barely treading water. With this plan, it will still be a hard swim, but, at least, there is a path to shore.

The plan essentially calls for private asset management firms - private equity, hedge funds, mutual funds, pension funds - to invest side by side with the government.

The private investors need the government because there are so many bad loans held in the financial sector that only the government's balance sheet can handle taking them over. The government needs help from private investors so it doesn't get hoodwinked by the banks.

Why will investors participate? The deal is structured so that firms will be responsible only for losses on their initial investment. The hope is that by giving this big "freebie," the government will induce investors to participate, and that competition among them will lead to higher offer prices for the loans and securities, thus encouraging banks to sell them.

A lot of ifs, but if indeed successful, the plan accomplishes mission No. 1, namely the removal of the bad assets from banks' balance sheets. Even if banks wanted to do this on their own, they can't because the market for these illiquid assets has dried up.

But let's not have any illusions. The government bears the risk if and when the investors take a bath on the taxpayer-provided loans. If the economy gets worse, it could get very ugly, very quickly. The administration should be transparent in making clear that there is still a wealth transfer taking place here - from taxpayers to investors and banks.

Also, while this plan is designed by the Treasury, many of the big guarantees are being made by the Federal Deposit Insurance Corp. and the Fed. Why not use only Treasury funds? Well, then the administration would have to deal with Congress. While the populist hysteria of last week suggests this end run might make sense, there is something a little worrying about circumventing the legislative process on such a huge investment.

Moreover, there's the issue of transparency - or lack thereof. No one knows what the loans or securities are worth. Competing investors will help solve this by promoting price discovery. But be careful what you wish for. We might not like the answers.

Finally, we have to anticipate the likelihood that some banks will resist selling their loans and securities. Why? Currently, the government has been giving them the option to keep holding them with the hope that market conditions will improve.

Going forward, the government must insist on the banks' involvement in the new program. The reason that financial institutions must be pressured is that they are the cause of the financial crisis. They took advantage of loopholes to avoid regulatory requirements, taking a huge bet on securities they were never meant to hold in the first place.

What happens if removing toxic assets from a bank's balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, "Why keep insolvent banks afloat?" And having asked that, we will have to search for ways to manage the ensuing systemic risk.

Either way, once the plan is fully implemented, we will be entering a new phase of the financial crisis. The water is choppy. Let's hope we are strong swimmers.

Richardson and Roubini are professors at the NYU Stern School of Business and have contributed to the recently published book, "Restoring Financial Stability: How to Repair a Failed System."

RINGLEADER
03-25-2009, 05:24 PM
George Soros predicted the economic collapse too. Made hundreds of millions off of it. I'm sure he endorses Geithner's new plan too.

wild1
03-25-2009, 05:34 PM
so do all these corrupt bankers who are getting bailouts

jAZ
03-25-2009, 06:08 PM
George Soros predicted the economic collapse too. Made hundreds of millions off of it. I'm sure he endorses Geithner's new plan too.

I believe it was $2 billion or so.

KC native
03-25-2009, 09:17 PM
I've been reading Roubini for about 2-3 years. He's called this with remarkable accuracy. I didn't think it would get as bad as he did but he was spot on. He is a good person to listen to when it comes to just about everything on this credit crisis.

Beyond that now that the details of the program have been clarified, I would say it's a definite improvement over TARP. I still think we should follow the Swiss model for the banks but I feel much more comfortable with this new program than I did with TARP.

Nightfyre
03-25-2009, 11:00 PM
From a perfectly economical perspective, I think a centralized depository institution is the way to approach banking. Effectively, there is one giant server which stores all the monetary data relating to dollars. Transactions could occur on PoS devices which then throw the transaction to the server.

Anyway- the beauty of it all is severalfold. Milton Friedman would love this. First, you can measure the money supply perfectly. Second, you can measure the velocity of money perfectly. Thus, you would be able to adjust the monetary supply perfectly proportionally to stablize prices. As a result, you have the most stable currency in the world, eliminate the federal reserve and achieve amazing transparency. The economic data would also be invaluable. Additionally, all loans would be handled as private money loans, allowing for the market to actually establish realistic rates as banks wouldn't be able to draw on low cost deposits. This would temper lending to a more sustainable and less boom-bust velocity. The downside is that the politicians would never have the balls to do it.

BucEyedPea
03-26-2009, 06:44 AM
George Soros predicted the economic collapse too. Made hundreds of millions off of it. I'm sure he endorses Geithner's new plan too.

What I don't get about One World Govt Soros is that he makes his millions are a capitalist speculator on currencies....yet he's such a pinko.

BucEyedPea
03-26-2009, 06:46 AM
From a perfectly economical perspective, I think a centralized depository institution is the way to approach banking. Effectively, there is one giant server which stores all the monetary data relating to dollars. Transactions could occur on PoS devices which then throw the transaction to the server.

Anyway- the beauty of it all is severalfold. Milton Friedman would love this. First, you can measure the money supply perfectly. Second, you can measure the velocity of money perfectly. Thus, you would be able to adjust the monetary supply perfectly proportionally to stablize prices. As a result, you have the most stable currency in the world, eliminate the federal reserve and achieve amazing transparency. The economic data would also be invaluable. Additionally, all loans would be handled as private money loans, allowing for the market to actually establish realistic rates as banks wouldn't be able to draw on low cost deposits. This would temper lending to a more sustainable and less boom-bust velocity. The downside is that the politicians would never have the balls to do it.
...therein lies the problem. They don't want lending tempered they want to spend, spend, spend or war, war, war. Whatever their pet projects are.

jAZ
03-26-2009, 06:48 AM
What I don't get about One World Govt Soros is that he makes his millions are a capitalist speculator on currencies....yet he's such a pinko.

Maybe the world doesn't exist in the sharp contrast of communist red vs free markets red-white-and-blue. Perhaps?

RINGLEADER
03-26-2009, 08:55 AM
Maybe the world doesn't exist in the sharp contrast of communist red vs free markets red-white-and-blue. Perhaps?

Tax him 90%!

jiveturkey
03-26-2009, 09:41 AM
Tax him 90%!How about just tax him? I saw a quick clip about these guys that pulled in billions from this mess and they are paying taxes at a lower marginal rate than I am. I don't make millions or billions.

I don't get it.