In a brief discussion of who could potentially replace Geithner if he were to be replaced, someone brought up Roubini (as I have in my previous entry, but not seriously considered). Except for being Dr. Doom, the one who’s been constantly bearish (hence the name), I wasn’t well-versed with his proposals on how to fix the system. In almost every appeareance I saw, it seems all I catch is him saying that things are not getting better anytime soon. And his stance on nationalization, which he favors. Surfing around his blog on RGE Monitor, I stumbled about his entry “The Rising Risks of a Global L-Shaped Near Depression and Stag-Deflation”, which contains his recommendations:
- Massive and more unorthodox monetary policy easing to defrost credit markets even if this may imply central banks widening collateral and taking greater credit risk;
- Massive and front-loaded fiscal stimulus more on the spending than tax side and with income relief to agents with high marginal propensity to spend (poor, unemployed, state/local governments);
- Rapid takeover of insolvent banks – full nationalization – and their quick clean-up and re-privatization;
- Aggressive credit growth incentive for banks and financial institutions to stop the collective action coordination problem leading them to contract credit to even creditworthy households and firms;
- Use of proper and constructive credit forbearance (on capital adequacy ratios, on mark-to-market marks, on rating agencies destructive lagged downgrades);
- Across the board reduction of the face/principal value of mortgage debt and other consumer debt for insolvent households as a case-by-case debt re-stretching of debt will not work;
- Immediate doubling of the IMF resources and provision of loans/liquidity to emerging markets under liquidity and financial stress (with conditionality for those economies with severe macro/financial/policy weaknesses; with very light conditionality for the emerging markets with sounder fundamentals).
Except for nationalization, we seem to be already heading towards the others he suggested. Seeing them made me a bit more open to the idea of him taking Geithner’s place. However, one question in mind is: With such a “hopeful” administration, what kind of sentiment would prevail if he were to sit as Treasury Secretary? Being Dr. Doom, he might end up scaring the investors more. He sure could be the black sheep of Obama’s administration, who breaks the positivity that is flowing out of them.