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Geithner Plan Good for Some Banks, Says Roubini--Others Are Toast

Posted Mar 31, 2009 12:48pm EDT by Henry Blodget in Investing, Recession, Banking
Related: c, bac, wfc, XLF, ^gspc, ^dji

Tim Geithner's plan to get toxic assets off bank balance sheets should help strengthen SOLVENT financial institutions, Nouriel Roubini of RGE Monitor says. But banks that fail stress tests (a.k.a., insolvent ones) should be seized, restructured, and sold.

In most bank bailouts so far, bondhonders have been spared losses, with taxpayers footing the bill. If future seizures are conducted properly, Roubini says, the bondholders won't be protected. Instead, they'll have to take their lumps along with everyone else.

This will cause pain for insurance companies, pension funds, and other institutions that have feasted on the high yields of bank bonds in recent years. But these bonds were never supposed to be risk free, and haircutting bondholders is fairer than just socking it to the taxpayer.

Earlier we discussed:

 

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