The near-impossible has occurred -- and no, not everyone on ABC's The View got along for a whole week.
Instead, NYU Economics Professor Nouriel Roubini --known as 'Dr. Doom' for his pessimistic outlook -- has seen a ray of light in the financial crisis and global recession.
Speaking on the Charlie Rose Show on PBS, Roubini said President Barack Obama's home mortgage refinance program will help reduce the home foreclosure rate, but added that more action is need on a variety of fronts to resolve the financial crisis.
A step in the right direction
"It will help, it's a step in the right direction, but it's not enough," Roubini said. "But we will need comprehensive action to prevent a long, L-shaped recession."
Further, Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, now believes a temporary nationalization of the U.S. banking system will be needed to restore normal credit flows.
In addition to temporary nationalization, Roubini also said three actions are essential to both financial system health and ending the recession: 1) continuance of a near-zero, short-term interest rate policy by the U.S. Federal Reserve, 2) more fiscal stimulus, and 3) a one-third reduction in all "underwater" mortgages -- in which the home's market value is substantially less than the amount borrowed -- to eliminate incentives for default.
Economist David H. Wang told DailyFinance Thursday he is in agreement with Roubini on the need for more fiscal stimulus and temporary bank system nationalization, but less so regarding the mortgage write-down recommendation. "We will need at least $400-600 billion more in fiscal stimulus, in my interpretation, due to the size of the GDP hole, and many major banks are essentially insolvent, but my sense is the underwater mortgage program is not as pervasive as Roubini indicates," Wang said. "Foreclosures should begin to decline in certain regions of the country as home prices start to bottom."
But Wang agreed with Roubini that without more stimulus and restored credit flows implied by a temporary bank system nationalization, "the recession will not approach a U-shaped recovery and will remain L-shaped, and continue into 2010."
Analysis: A positive observation from Roubini, who added that the Obama administration is doing more to end both the crisis and the recession than the Bush Administration. Saying the Obama administration's refinance program will help may not seem like much, but when compared to Roubini's previous projections, it feels like a warm spring day. Still, as noted, investors should maintain a proper perspective: Roubini underscored that more major policy actions are needed before we can feel confident about an economic recovery.
NYU's Dr. Doom: Obama mortgage plan will help, but more action needed