Nouriel Roubini: 8 Ways to Stop the Credit Crisis

Economist Nouriel Roubini lays out what he thinks needs to be done right away to stop the escalating financial crisis.

1) another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

2) a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

3) a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

4) massive and unlimited provision of liquidity to solvent financial institutions;

5) public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

6) a massive direct government fiscal stimulus package that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;

7) a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;

8) an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.[endblock]

Me: Among the items on my list would be 1) clearly suspending mark-to-market accounting rules, 2) removing the ceiling on deposit insurance, 3) direct capital injections into the banking system, 4) a zero capital gains tax rate, 5) refunding all corporate taxes, 6) guaranteeing interbank loans, 7) having Treasury buy the estimated $225 billion in bad subprime and alt-a mortgages.