Saturday, February 28, 2009

Roubini: Fully Nationalizing Citi and Bank of America Would Be Better

One thing for sure, right now we facing for the worst what will happen next week ? Dow Jones Industrial Average (DJIA) is getting weaker and weaker. On Friday's trading the DJIA create new lows again. This time around we might be seeing huge potential for the DJIA to breaks the 7,000 points level.

With the share market heading lower again and the DJIA hitting yet another new low in 11-years, it's hard to believe stocks will ever be a good investment. What we are looking for at these moments is not for long terms investment but rather just a short terms play only.

It is not worth it to buy and hold as the current major financial crisis still going on and the financial crisis is not only happen in the U.S. but rather in the whole world as well.

Lately we can see that more bad news is coming out each week and there is no sign for recovery until now. Only yesterday the U.S goverment help a little bu announcing that they will increase their efforts to help out two of biggest bank in the state but their effort still not good enough. Here are some of the comments from Nouriel Roubini, the economist professor.

(Quote from Yahoo Finance - Click here to watch the video) Friday's announcement the U.S. government will convert up to USD 25 billion of its Citigroup preferred stock into common equity represents Uncle Sam's third direct attempt to rescue the floundering bank.

The conversion would give the government up to 36% control of Citigroup stock and leave existing common shareholders with as little as 26% of the company's common stock. That explains why the stock tumbled 39% to USD 1.50 Friday despite CEO Vikram Pandit's strange declaration: "In many ways for those people who have a concern about nationalization, this announcement should put those concerns to rest."

Pandit's claim is "like saying you're half-pregnant," says Nouriel Roubini and economics professor at NYU's Stern School and chairman of RGE Monitor. "The government has already taken over the financial system," Roubini says, noting U.S. policymakers have committed USD 9 trillion to rescue the financial system and already spent USD 2 trillion. "So let's stop the delusion about 'no nationalization.'"

Roubini, who has publicly advocated for temporary nationalization of insolvent banks, says fully nationalizing Citigroup and/or Bank of America would have a minimal effect on the Dow, which is a price-weighted average. More importantly, he believes
full nationalizations (vs. the current partial, piecemeal effort) would be better for the market and the economy because it's the first step in the process of cleaning up "bad" banks so they can later be sold back to private investors, i.e. "re-privatized", as was the case last year with IndyMac.

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