Thursday, May 7, 2009

U.S. Banks Need a Dose of Creative Destruction Roubini Says

By Alan Purkiss

May 7 (Bloomberg) -- The U.S. government's stress tests on 19 U.S. banks, the results of which are to be published today, will be presented as showing that none have failed, but the market will judge otherwise, said Nouriel Roubini and Matthew Richardson, both economists at New York University.

Writing in the Financial Times, they said institutions needing billions of dollars of extra capital will be considered close to insolvency and will therefore be unable to raise outside capital, so the government will have to step in again.

The question is whether it's right to help these banks, or whether the government should instead let them fail and concentrate instead on ways of managing the systemic risk of such failures, Roubini and Richardson said.

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