Roubini is definitely not the only one that has forecasted the crisis and many others offered better solutions, but the government ignored them, because their solutions have been quite the opposite of the catastrophic policies favored by the government . Soon it will not matter anymore what the government and the Fed are doing, because it is too late. So far the government and the Fed have turned a recession, that would have healed the economy, into the Greatest Depression.
Tim Geithner must nationalise some of America’s biggest banks and take the total toll of the US bail-out to around $2 trillion, according to one of the world’s most prominent economists.
Nouriel Roubini – the man feted with having foreseen the financial crisis before almost any of his peers – has warned that the US Treasury Secretary must go significantly further than his detail-light bail-out plan delivered last week, and argues that the Obama administration should move swiftly to take public ownership of those major US banks which are failing.
Professor Roubini, who worked with Mr Geithner in the Clinton administration, told The Daily Telegraph: “Many US banks are insolvent, even the major ones.” While nationalisation is “a politically- charged decision” which needs to handled carefully, he said it needs to take place “sooner rather than later” for the sake of the wider economy.
Professor Roubini calculated that, on top of the existing $700bn (£491bn) of American taxpayers’ money allocated to solving the banking crisis, Mr Geithner may need to ask the US Congress for between $1,000bn and $1,250bn in extra funds. “Sooner rather than later, they’ll need more money,” he added.
Prof Roubini, professor of economics and international business at NYU Stern, New York University’s business school, is highly critical of Mr Geithner’s bail-out plan, which he unveiled to much market chagrin last Tuesday.
The New York-based academic believes that although his former boss e_SEmD the two worked together when Mr Geithner was under-secretary of international affairs at the Treasury in the dying days of the Clinton era e_SEnD is moving in the right direction, he is either unwilling or unable to be direct enough when it comes to taking the tough decisions.
Prof Roubini also has some stern advice for the British government, itself facing yet another banking crisis this week as it considers whether to increase its ownership of Lloyds Banking Group.
“In the UK, the government has taken over those banks in distress through a number of measures. But the question now is whether they want to go from de facto ownership to de jure?
“It’s necessary and I think that’s the way we’re going in the UK,” he continues, saying he would be “supportive” of such a decision. Politicians “might not want it,” he adds “but it is strong in action,” before going on to explain that it is better for markets that governments nationalise banks quickly, resolve problems whilst in public ownership, before returning them to the market.
Prof Roubini argues that the UK is very similar to the US in terms of its economic position due to its analogous problems – both suffered housing and consumer credit bubbles – but is even more concerned about Germany, which produced dismal gross domestic product figures at the end of last week.
“Germany did not have the same excesses as the UK, but even the German banks had significant exposure to other types of excesses in lending, and they’re weak,” he says.
By James Quinn Wall Street Correspondent
Last Updated: 1:12AM GMT 16 Feb 2009
Source: The Telegraph