‘Nationalize’ the Banks

Very entertaining interview  in the WSJ by former OpEd page editor Tunku Varadarajan, about our boy Nouriel.

What makes it so much better than the run of the mill interview is the personal color that Tunku adds to the interview.

Very readable, quite amusing:

Nouriel Roubini is always dressed in black-and-white.

I have known him for nearly two years, and have seen him in a variety of situations — en route to class at New York University’s Stern Business School, where he’s a professor; over a glass of wine in his boyish loft in Manhattan’s Tribeca; at an academic conference, seated sagely on the dais; at a bohemian party in Greenwich Village, at . . . oh . . . 3 a.m. — and he always, always wears a black suit with a white linen shirt.

And so, in black-and-white he was, earlier this week, when he rushed into the office of Roubini Global Economics, his consulting firm in downtown Manhattan, and offered a breathless apology to this correspondent, who’d been waiting for half an hour. “Really sorry I’m late! Charlie Rose taped for way longer than he said he would.”

Mr. Roubini — a month short of 50 — is in huge media demand, the nearest thing to a rock-star among the economists who hold our fate in their hands these days. The peculiar thing, of course, is that he’s in demand because he specializes in predictions of gloom. (He has earned himself the sobriquet of “Doctor Doom.”) In person, though, he’s anything but a downer.

The man has instant impact on public debate. An idea he floated only last week — that our “zombie banks” be temporarily nationalized — aired first on Forbes.com, where he writes a weekly column. It has evolved, in the space of just a few days, from radical solution to almost received wisdom.

Last Sunday on ABC, George Stephanopoulos asked Lindsey Graham, the conservative Republican senator, what he thought about all this talk of bank nationalization. Mr. Graham said that he wouldn’t take the idea off the table. And on Wednesday, Alan Greenspan told the Financial Times that “it may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.”

Mr. Roubini tells me that bank nationalization “is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] — i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector — it’s clear that it’s temporary. No one’s in favor of a permanent government takeover of the financial system.”

There’s another reason why the concept should appeal to (fiscal) conservatives, he explains. “The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks.”

In any case, Republicans must now temper their reactions, he says. “The kind of government interference in the economy that we saw in the last year of Bush was unprecedented. The central bank — supposed to be the lender of the last resort — became the lender of first and only resort! With our recapitalizing of financial institutions, and massive government intervention in the markets, we’ve already crossed a significant bridge.”

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.”

Good stuff . . .

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Source:
NOURIEL ROUBINI: ‘Nationalize’ the Banks
Dr. Doom says a takeover and resale is the market-friendly solution.
TUNKU VARADARAJAN
WSJ, OPINION: THE WEEKEND INTERVIEW FEBRUARY 20, 2009, 10:59 P.M.
http://online.wsj.com/article/SB123517380343437079.html