The man has instant impact on public debate. An idea he floated only last week – that our "zombie banks" be temporarily nationalized – aired first on Forbes.com, where he writes a weekly column. It has evolved, in the space of just a few days, from radical solution to almost received wisdom.
Last Sunday on ABC, George Stephanopoulos asked Lindsey Graham, the conservative Republican senator, what he thought about all this talk of bank nationalization. Mr. Graham said that he wouldn't take the idea off the table. And on Wednesday, Alan Greenspan told the Financial Times that "it may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring."
Lindsay Graham won't rule it out? Good. Perhaps in four months Bank of America will really be Bank of America. Does Greenspan have any credibility left? Not in this corner.
Mr. Roubini tells me that bank nationalization "is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] – i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector – it's clear that it's temporary. No one's in favor of a permanent government takeover of the financial system."
So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."
He knows better; six months, or so.
"Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step."
The 2008 GDP of the US was estimated at $14.58 trillion.$7 to $9 trillion makes more than 50% of that figure.
Yet another reason why bank nationalization is a good idea, Mr. Roubini continues, is that "we started with banks that were too big to fail, but what has happened, in the process, is that these banks have become even-bigger-to-fail. J.P. Morgan took over Bear Stearns and WaMu. BofA took over Countrywide and then Merrill. Wells Fargo took over Wachovia. It doesn't work! You can't take two zombie banks, put them together, and make a strong bank. It's like having two drunks trying to keep each other standing.
"So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they're stronger! Nationalization – or 'temporary receivership,' if you like, if the N-word is a political liability – is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up.
For decades Sandy Weill and cohorts were allowed to build the behemoths that now have to be broken up for the good of the economy -- and he gets to keep the ill-gotten millions, some of which he gives away and gets his name of nameplates and buildings. Brilliant.