Nouriel Roubini, Prescient Economist Known as “Dr. Doom,” Says Bailout Process Is a Disgrace

Two years ago an economics professor at New York University, Nouriel Roubini, made stark predictions about the future unraveling of the U.S. economy.  For his efforts, he was nicknamed, “Dr. Doom.”  His predictions now all seem to be coming true, and the writings and opinions of Dr. Roubini are now urgently listened to.

It is disturbing that Dr. Roubini, on his web-site today, says, “It is a disgrace that no professional economist was consulted by Congress or invited to present his/her views at the Congressional hearings on the Treasury rescue plan.”

Roubini says, “The Treasury plan (even in its current version agreed with Congress) is very poorly conceived and does not contain many of the key elements of a sound and efficient and fair rescue plan.”

The growth of debt as a fraction of Gross Domestic Product (GDP) is higher now than during the Great Depression

The amount of debt in the U.S. continues to grow. Total Debt on the U.S. -- as a fraction of Gross Domestic Product (GDP) -- is higher now than during the Great Depression

Roubini has advanced his own plan, he calls “HOME (Home Owners’ Mortgage Enterprise): A 10 Step Plan to Resolve the Financial Crisis.”  Roubini writes, “I have also argued that, in order to resolve this financial crisis it is not enough to take the bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary and fundamental to reduce the debt overhang of millions of insolvent households via a significant debt reduction on their mortgages (an HOLC program like the one that was implement during the Great Depression); and also recapitalize undercapitalized banks with public capital in the form of preferred shares (as the RFC did with 4000 banks during the Great Depression). An RTC scheme without an HOLC and RFC component would not resolve two fundamental problems: millions of households are insolvent and unable to service their mortgages; the financial system is vastly undercapitalized and needs capital to avoid an ugly credit crunch and to foster new credit creation that is needed for future growth.”

Here are some helpful definitions by Wikepedia:

  • The Home Owners’ Loan Corporation (HOLC) or Home Owner’s Refinancing Act, was a New Deal agency established in 1933 under President Franklin D. Roosevelt. Its purpose was to refinance homes to prevent foreclosure
  • The Resolution Trust Corporation (RTC) was a United States Government-owned asset management company charged with liquidating assets (primarily real estate-related assets, including mortgage loans) that had been assets of savings and loan associations (S&Ls) declared insolvent by the Office of Thrift Supervision, as a consequence of the savings and loan crisis of the 1980
  • The Reconstruction Finance Corporation (RFC) was an independent agency of the United States government chartered during the administration of Herbert Hoover in 1932. It was modeled after the War Finance Corporation of World War I. The agency gave $2 billion in aid to state and local governments and made loans to banks, railroads, farm mortgage associations, and other businesses. The loans were nearly all repaid. It was continued by the New Deal and played a major role in handling the Great Depression in the United States and setting up the relief programs that were taken over by the New Deal in 1933.
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