Protectionism in Asia?

Nouriel Roubini has a piece in Forbes discussing the future of large global imbalances. The basic question is whether the large balances in Asia (primarily China) and in the commodity producing Middle East nations is sustainable or whether they should focus on increasing domestic consumption. Therefore reducing their dependence on foreign nations (such as the U.S.) for economic growth. However, since these countries are largely invested in the U.S. one must wonder whether this approach may cause a significant unwinding in the global macroeconomic environment, one that may extend economic depression beyond what we've witnessed to date. Ultimately the IMF will play a key role in ensuring that any potential unwinding at the macro level will be orderly.

So while we consider protectionist policies in the U.S. perhaps we should pay more attention to protectionist policies developing with are largest trading partners, especially the ones that own significant amounts of our debt. This may be the ultimate house of cards.

Roubini's latest thoughts

Today's Nouriel Roubini update is from his Op Ed in the NY Daily News. Roubini and Richardson lay out some scary thoughts. Although they are firmly behind the Geithner plan they also provide the ultimate question to be answered...will selling toxic assets push banks over the edge? They argue that the government needs to push the banks to sell. I say, if banks are really convinced that their valuation models are reasonable (and hence a rational alternative to MTM), then let them keep the allegedly toxic assets. The irony is that if banks subject their assets to the PPIP (Public Private Investment Plan) and don't like the market price they prove the value of MTM and should therefore right down anything they are holding immediately, however if they withhold assets from the market they would seem to be legitimately supporting their model valuation approach. In other words, banks can't have their cake and eat it too...should be fun to watch.

Check out this Economist.com article for more on whether banks will really sell.

Doom = Good

Nouriel Roubini is apparently a fan of the Geithner plan, however the FT thinks it may take banks under.

I like the FT piece because it takes the heat off of MTM as the cause, it's essentially saying that if Geithner's plan yields a market price that banks can't sustain then it proves the value and necessity of having MTM in the first place. Welcome to zombie banks if that's the case.