Thursday, February 12, 2009

Roubini: Nationalizing Banks Is the Best Way to Go: Tech Ticker, Yahoo! Finance

Roubini : Nationalizing Banks Is the Best Way to Go: Tech Ticker, Yahoo! Finance:
"...paradoxically nationalization may be a more market friendly solution of a banking crisis: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions provides a fair upside to the tax-payer. It can also resolve the problem of avoiding having the government manage the bad assets: if you selling back all of the assets and deposits of the bank to new private shareholders after a clean-up of the bank together with a partial government guarantee of the bad assets (as it was done in the resolution of the Indy Mac bank failure) you avoid having the government managing the bad assets.
Good point later as well:
"...also resolves the too-big-too-fail problem of banks that are systemically important and that thus need to be rescued by the government at a high cost to the taxpayer. This too-big-to-fail problem has now become an even-bigger-to-fail problem as the current approach has lead weak banks to take over even weaker banks."
This is largely consistent with what we discussed a few weeks ago in class.


fboness said...

"Too big to fail" should be read as too big to be allowed to exist. Break 'em up. Maybe use the anti trust laws?

Bruce Krasting said...

Nationalization may be the end result. The problems are too large. However, the day that nationalization of C or BAC takes place is the day that a lost decade will start.

I wrote the Alternative to the Bad Bank Problem. This approach would address the problem and avoid nationalization.