Roubini: Obama's stimulus "it's not enough" and fix housing by "breaking every mortgage contract"

[Better Believe It]

Nouriel Roubini, RGEMonitor.com, appears at the CBOE Risk Conference and proclaims that unless drastic action is taken soon, the world as we know it is about to come crashing down.

Among his solutions: fix the housing market by breaking "every mortgage contract."

"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again." As for the claim that the Treasury Department can't legally take over the banks, Roubini said that most of the banks are already owned by the government and that the government could "put them in receivership" if it had to.

So what can the government do? The easy part is lowering interest rates and buying toxic assets. The hard part, he says, will be tackling housing. Roubini says that the housing market, like a company restructuring in bankruptcy, needs to have "face value reduction of the debt." Rather than go through mortgages one by one, he says reduction has to be "across the board...break every mortgage contract."

Roubini also took issue with the $800 billion stimulus package, saying it's not enough. For one thing, there's only $200 billion upfront, and half of that is a tax cut, which Roubini calls "a waste of money" that is not going to make a difference.

http://www.rgemonitor.com/blog/roubini/255916/us_recession_could_last_up_to_36_months_-_latest_roubinis_interviews_on_cnbc

Please look at the three videos of Roubini's speech at these three links. The video is divided up into three parts.

Part 1 Click Here: http://www.cnbc.com/id/15840232/?video=1057204588&play=1

Part 2 Click Here: http://www.cnbc.com/id/15840232/?video=1057227939&play

Part 3 Click Here: http://www.cnbc.com/id/15840232/?video=1057228341&play=1

[NewJeffCT]

1. He's a sharp guy and he's probably right

on the need to temporarily take the banks over... call it receivership or public ownership if you don't want to call it nationalization, just do it.

[Better Believe It]

4. Right. His other major point has been on the necessity of bank nationalization.

Obama can't afford to dilly, dally around on this issue. He's quickly running out of time.

And we need a new stimulus bill that will actually create a few million jobs in within the next year. The so-called stimulus bill falls far short of our needs.

--------------------

The interview linked in lead post:

Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent."

"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again." As for the claim that the Treasury Department can't legally take over the banks, Roubini said that most of the banks are already owned by the government and that the government could "put them in receivership" if it had to.

Earlier in the day, Roubini spoke to the CBOE Risk Management Conference and said he believes total losses could peak at $3.6 trillion in the financial system, with half of that being borne by banks and bank dealers and the other half borne by hedge funds and pension funds, among others.

[HiFructosePronSyrup]

2. Huh?

"Among his solutions: fix the housing market by breaking "every mortgage contract.""

His solution is to renegotiate the mortgages in such a way that all parties come out on top.

If Roubini's got a better idea, I'd like to hear it.

"The market friendly view for the banks is nationalization," said Roubini."

Well that's all fine and dandy. Unfortunately, it's not congress friendly. And nationalizing the banks would take an act of congress.

[Better Believe It]

5. Banks can be taken over by gov't without Congressional action.

"And nationalizing the banks would take an act of congress."

That's not true. Roubini and other credible economists have explained how that could be done without new legislation.

You haven't had time to actually see the video's of Roubini's address before you commented on it.

I urge you to look at them.

[NewJeffCT]

10. I know with insurance companies

If the company falls below a certain RBC ratio, the government has a right to take them over. Insurance companies have to contribute to a fund to support potentially insolvent insurance companies. There is probably something similar for banks.

RBC is risk-based capital, and it uses a pretty complex formula to determine how risky the company's holdings are (bonds, stocks, etc) in relation to their obligations. Unfortunately, companies like AIG skirted the rules by having their risky investments outside of their insurance business, so their RBC ratio was not affected.

[apnu]

3. Woah, that's some deep stuff right there.

Damn, it took guts to say it. Bravo!

[Better Believe It]

6. That would stop many foreclosures and establish a realistic floor for the housing market

[FrenchieCat]

7. The daily refrain.....

Cool!

We'd forget otherwise! :)

[busymom]

8. So is he suggesting

that we mortgages should be broken and the then renegotiated at the current market value of the home?

THAT I could jump behind!

[OwnedByFerrets]

9. Buying toxic assets??

Arent there TRILLIONS of dollars of toxic assets? Hundreds of Trillions?? I dont think they CAN be bought. Someone help me out here.

[Better Believe It]

12. Roubini isn't talking about Credit Default Swaps and other exotic derivatives

Just home mortgages.

[truedelphi]

13. S-s-s-sh! We haven't heard the truth up to now, & there is absolutely

No pOint muddying the waters with the truth now.

Gotta keep that money flowing into the bamks or they willl go belly up. Same today as late September 2008.

Notice it isn't Roubin or Obama or Geithner that will pay for this process - it is us taxpayers.

[BeyondGeography]

11. He's basically saying forget the last seven years ever happened

Interesting precedent...