This is a transcript from PBS’s Nightly Business Report:
SUSIE GHARIB: A bleak economic forecast from the man who’s been nicknamed doctor doom. Earlier today I sat down with Nouriel Roubini, the economics professor at New York University’s Stern School of Business who predicted the financial crisis long before everyone else. My first question: will President Obama’s mortgage recovery plan slow down foreclosures and help the economy?
NOURIEL ROUBINI, PROF. OF ECONOMICS, NYU STERN SCHOOL OF BUSINESS: Reducing monthly payment is positive, but you need a reduction in the face value of the mortgages — significant, 20, 30, 40 percent depending on the household. So in my view this plan is too timid. It’s going in the right direction but it’s going to take years until we have (INAUDIBLE) on millions of these household debt and it’s going to be too little too late and therefore it seems that (INAUDIBLE) housing is going to be relatively weak.
GHARIB: Professor Roubini, when you look at President Obama’s overall economic stimulus plan, will it work?
ROUBINI: The headline is $800 billion but only $200 billion that’s going to be spent this year. The part of it is a tax rebate in my view is not going to be spent. Last year we had a tax rebate only $0.30 on the dollar were spent. The rest of it was saved because people are so worried about jobs, about running down their credit and mortgage debt, they’re not spending it. So the tax part of it in my view is a waste of money. And a lot of the infrastructure spending is not going to be ready to be spent right away. There are very few projects that are shovel ready. Many of them take years to implement. So my concern is that while the headline number looks big, the actual size of spending this year might be small compared to what is necessary to get us out of this very severe economic contraction.
GHARIB: You’ve been a big advocate of nationalizing America’s banks. Why do you think that’s a good idea?
ROUBINI: Increasingly people from center right and left including Alan Greenspan and Senator Gram from South Carolina who is a Republican are suggesting actually a temporary nationalization of the banking system might be appropriate because you have to take over the banks. You have to wipe out the shareholders. You have to clean up the banks. You have to separate the good and the bad assets and then you have to find investors in the private sector willing to buy a clean bank with good assets. That’s the right approach.
GHARIB: With the exit strategy, critics worry that once the government takes over. It’s going to be very difficult to get them out.
ROUBINI: You can do it relatively fast. Take, for example Indymac was bankrupt. It was taken over in July. And less than six months later by the same very group of private investors were willing to buy back the assets and the deposits because (INAUDIBLE) the bank. So it doesn’t have to be under government control for years and years. You can do it actually relatively quickly.
GHARIB: One of the big selling points of the stimulus plan is that it’s going to create millions of jobs. If that is the case, how soon do you see the unemployment rate dropping?
ROUBINI: No one is really expecting that the unemployment rate is going to start to shrink any time soon. It’s going to keep on rising I believe to 9 percent easier, probably as high as 10 percent next year. All the stimulus plan can do is to slow down the rate at which job losses occurring, not to reverse it for the time being.
GHARIB: So when will the economy recover and grow again?
ROUBINI: Well, we are in the middle of a very severe, deep recession. It’s going to last at least 24 months, something that’s U-shaped and there’s even a risk of something worse, something like an L-shaped Japanese near depression. And whether we’re going to end up in a severe recession or something worse like Japan depends very much on our policy response.
GHARIB: So are you saying that despite all these economic recovery plans that this recession could turn into a depression?
ROUBINI: It’s a possibility. It’s a low probability. If we do everything right on the (INAUDIBLE) on the fiscal on the bank and the debt problem we avoid a near depression like the Japanese (INAUDIBLE). If we make mistakes in the U.S. and other countries, many other countries are behind the curve in the policy response, I would not rule out there is an L-shaped Japanese kind of style near depression. That’s a possibility.
GHARIB: Professor Roubini, thank you so much for your time.
ROUBINI: A pleasure being with you today.