Roubini: Clean Up Housing And The Banks, Then Wait For 2010
by Deacon Blues
I agree with "Dr. Doom", Dr. Nouriel Roubini of NYC, who predicted yesterday that the recession could last 36 months. Roubini says the US has been in a recession since late 2007/early 2008 (just as Soto said at the time, to mockery from the trolls). He predicts that we're still looking at bad times through 2009 and well into 2010 before things get better.
Roubini says that the stimulus was too small and had useless tax cuts in it (yup), and that the next round needs to deal with the toxicity rampant in the economy from upside-down mortgages.
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.
He also cuts to the chase when it comes to the banks: nationalize some of them now, clean them up, and turn 'em loose. It's hard to see an upside in continuing to dump billions into the banks now without going the extra step of temporary nationalization.
Remember, this was a year-long Bush recession before Obama even came on the scene.