4/20/2009 – Intelligent Investing with Steve Forbes (click here for video)

“Steve Forbes: You proposed, a few weeks ago, nationalizing some of the banks. Do you feel that is still going to happen before this over?

Nouriel Roubini: Oh, I think some of them will have to be taken over. I mean, I proposed these from a market-friendly point of view. Nobody is in favor of medium- or long-term ownership of financial institutions by the government. But in my view, paradoxically, the temporary nationalization is a more market-friendly solution, because you know, if you don’t do it, then you end up with zombie banks, and the fiscal costs are going to be large.

That’s why, you know, fiscal conservatives have been in favor of it. That is why people like Lindsay Graham, conservative Republican from Carolina, is in favor. That’s why Alan Greenspan, high priest of laissez-faire capitalism, has said we may have to nationalize some banks. We will have to do it carefully, choose only the ones that are really beyond pale, that even if you give time, time is not going to heal their wounds.

We’ll see. But I think, in some cases, that might be the appropriate thing. And if it is not market-friendly–take IndyMac, [which] was taken over middle of last year, cleaned up, separated. And now, the bunch of investors, George Soros and John Paulson [and] others, we bought it back and privatized it. It took six months. [It] does not have to take three years if you do it right.”

“Steve Forbes: What is your feeling about the latest Geithner plan?

Nouriel Roubini: My view of it is, actually, that it can work for dealing with the toxic assets of banks that are solvent, because even after you do this stress test and you do a triage within solvent, insolvent. With the insolvent ones, you cannot apply the Geithner plan because the losses are so big that if you apply [that] to them, they are underwater. You have to take them over.

But even with a solvent one, you have to still separate good and bad assets. Now there are five different ways of doing them. We do not have time to go into each detail. Each one of them has merits and some flaws. These ones are among the five different ways in which you can separate good and bad assets of solvent banks–is not the worst. There [are] some design issues, some flaws in which the way the design can be fixed. In my view, all in all, it is actually a reasonable plan.”