Roubini’s triage

Roubini

Nouriel Roubini. Economist.

Roubini says the original plan was flawed, that it needs a triage approach:

  • The government needs to determine fast which banks are distressed but solvent, and let
    the others go under, in order to avoid a run of the banks, since
    deposits (not covered by the FDIC) are leaving banks because their
    solvency is unknown.
  • Then, recapitalize the surviving banks through the purchase of prefered stock,
  • and reduce the mortgage debt, through an HLOC or similar agency, so debtors can stay in their homes and pay their mortage…

Hence, confidence to banks is reestablished.

If this is the traditional approach, why didn’t Paulson and Bernanke take these steps in the first place?

It could be that the new instruments make the determination of the solvency of the banks almost impossible. Roubini doesn’t think so.