WILLIAM GREIDER: President Obama and if the Democratic leaders in Congress follow along, he'll put the Democratic Party on the wrong side of history. At this critical moment. What we ought to be seeking, the goal of reform, and government aid, is creating a new financial and banking system, of many more, thousands more, smaller, more diverse, regionally dispersed banks and investment firms. That's first obligation is to serve the economy and serve society. Not the other way around.
What the administration's approach may be doing is consecrating too big to fail, for starters. Which, of course, everybody in government denied was the policy until the moment arrived. And secondly, and this will sound extreme to some people, but I came to it reluctantly. I fear what they're doing, not intentionally, but in their design is setting the crown for a corporate state.
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The government is conducting stress tests of banks to determine how much more capital each will need. Roubini said once those were completed it will be evident that some banks will need to be taken over and have their good and bad assets separated before being returned to the private sector.
Geithner’s Plan
Critics of Geithner’s plan including Krugman, a professor at Princeton University, say the government should take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities. Sweden adopted the temporary nationalization approach in the 1990s.
Roubini, who also runs his own economics consultancy, estimates a total of $3.6 trillion of loan and securities losses in the U.S., including writedowns on $10.84 trillion of securities and losses on a total of $12.37 trillion of unsecuritized loans.
With “deflationary forces” lingering for as long as three years, Roubini said U.S. government bond yields were going to remain relatively low and that American house prices would fall as much as 20 percent more in the next 18 months. While the dollar will benefit as investors seek safe havens, it will ultimately decline as the U.S. trade deficit has to shrink, he said.
The need for governments to issue more public debt to fund stimulus and bank-rescue packages risked more downgrades to sovereign debt and the failure of more government auctions as happened in the U.K. yesterday, Roubini said.
Administration unveils financial system overhaul
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