Banking Law

I made a little fun of Nouriel Roubini last week, mostly because he's so unrelentingly downbeat, yet has managed to achieve a kind of "rock star" status among business and economics geeks. It's as if being on the brink of wrapping your lips around the tailpipe of an idling Ford F-150 and inhaling deeply is an American civic virtue.

Yesterday, Tom Brown went to town on Dr. Roubini and made my mild fun-poking look like a virtual love fest.

As the cycle turns higher, Nouriel Roubini is returning to his role as a reflexive, tendentious crank. Dr. Doom was in classic form in BusinessWeek last week in his interview with Charlie Rose. Some highlights, along with some comments from yours truly. [Emph. added]:

What happened to all the toxic assets?

Some of them have been written down, but the policy response has been pray and delay. Many banks are still carrying these assets and loans on their books at face value of a hundred cents on the dollar.

He can?t really believe this. No sane person can. The real estate crackup began in earnest in 2007. Since then, lenders have had to generate audited financial reports three times?for 2007, 2008, and 2009. Does Roubini believe there?s some kind of conspiracy among lenders, auditors, and regulators that?s allowing banks to keep their distressed assets marked at par all this time? That?s not just mistaken, it?s delusional.

Harsh? Surely. Justified? Naturally. Channeling the spirit of Donald Rumsfeld? Yes.

No one who works for or represents commercial banks, especially community banks that have been mowed down by the hundreds in the last couple of years, is going to do anything other than mock someone who states as a matter of fact (not opinion) that "many" banks are carrying "toxic assets" (which are the subject of the question) at original book value. It is simply not within our realm of experience. You can argue legitimately over the issue of whether or not the write downs of troubled commercial real estate loans and other "distressed assets" on the balance sheets of commercial banks have been more or less than is "reasonable," but saying that they haven't been written down at all at "many banks" is worthy of every bit of vitriol that Tom can muster to throw at Nouri. It makes Roubini appear to be, at best, ignorant of the facts on the ground.

As I intuited last week, Roubini thinks too-big-to-fail banks ought to broken up. Tom lambastes Nouri for this view, as well.

I?m no fan of size in the banking business, either, but this notion that systemic risk would somehow be reduced if, say, JPMorgan Chase were broken up into its constituent parts is plain crazy. The company?s derivatives unit, for example, would be ?systemically important? whether it?s a unit of mighty Morgan or if it were a standalone boutique.

Tom excoriates Roubini for some of his other views, as well. You should read the whole post, which isn't long, but is entertaining. While I don't have the same feeling that Tom has for every bloviation of Roubini's, I agree with him on enough of them to feel his pain.

The comments section to Tom's post is also amusing, but not in the way many of the commenters, almost all of whom are anonymous, may have intended. As a well-known blogger once declared shortly before shutting down her comments box, "Don't kid yourselves: what we do here does not rise to the level of honest debate."

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