Nouriel Roubini: Why Bill Gross Is Wrong and I'm Right About Nationalizing Banks

[Better Believe It]

Nouriel Roubini: Why Bill Gross Is Wrong and I'm Right About Nationalizing Banks
A Video of the March 2, 2009 interview with Roubini.

In the past year, "nationalization" has gone from the unthinkable to the heavily debated. From the beginning, Nouriel Roubini of NYU's Stern School has played an integral role in the discussion, having warned of its likelihood long before most people have even considered the possibility. More recently, Roubini has publicly advocated for full nationalization of struggling banks like Citigroup, including here and in The Washington Post. This has exposed him to criticism, notably from Pimco's Bill Gross who recently wrote:

"I think Roubini, Dodd and Greenspan haven't thought this one through. The U.S. isn't Sweden, and not just because our blondes aren't au naturel."

Gross' critique of Roubini and nationalization focuses on these main points:

•The Perils of Going Swedish: "Their successful approach revolved around a handful of banks but we have 7,500, as well as many S&Ls and credit unions, which would have to be flushed into government hands," Gross writes. "Regulators are overwhelmed as it is."
•Lehman, Revisited: "If you thought Lehman Brothers was a mistake, just standby and see what nationalizing Citi or BofA would do," Gross warns.
•Haircut 100: While common shareholders will suffer from further capital injections into banks, "to go further, however, and 'haircut' senior debt or even existing preferred stock similar to that issued via the TARP would create an instability policymakers should not want to risk," Gross writes. "In turn, forcing creditors to take haircuts would undermine other financial sectors such as insurance companies and credit unions."

In the accompanying video, Roubini addresses (and refutes) each of these points and also tackles the controversial question over whether Gross, a.k.a. "the bond king", is merely talking his book and trying to influence policymakers. (Note: This video was taped Friday, prior to Bloomberg's report about Pimco, the world's largest bond manager, advising the government on Bank of America's toxic debt.)

To see the video click here:

http://finance.yahoo.com/tech-ticker/article/yftt_196821/Roubini:-Why-Bill-Gross-Is-Wrong-and-I%27m-Right-About-Nationalizing-Banks?tickers=AIG,C,BAC,XLF,%5EDJI,PTTPX,SKF

[truedelphi]

1. One thing that worries me - our nation has such dishonest people in places of

Of High Posititon and Authority.

The moment we nationalize our banks, the vultures will be scrambling over one another to be in charge of the new schemes. This really worries me.

[On the Road]

2. This One I Don't Understand at All

•Lehman, Revisited: "If you thought Lehman Brothers was a mistake, just standby (sic) and see what nationalizing Citi or BofA would do," Gross warns.

Lehman Brothers wasn't nationalized; it was allowed to fail. The failure caused an immediate financial panic that might have destroyed the financial system without a $2T emergency extension of credit by the Fed. An AIG bankruptcy would have been even worse.

That is what happens if you do NOT nationalize when major institutions are about to fail. It is why Boa and Citi MUST be nationalized if they are about to go under.

[JFKfanforever]

3. Really?

BoA too?

[hay rick]

4. Bill Gross- bond king.

Gross's argument is entirely self-serving. He is against nationalization because it puts creditors (bond holders) at risk. Capital injections put the entire onus on shareholders by diluting stock values. Gross's view seems to be that foolish buyers should be bankrupted before foolish lenders feel any pain.

Roubini points out that the options have already been reduced to partial nationalization vs. full nationalization.

When capital injections equal or exceed the current privately held equity (market cap) of an institution, it is difficult to avoid the conclusion that bondholders are being bailed out.

[and-justice-for-all]

5. We should have control over our currency...

and not private banking institutions.