Everything's now at the margin. I think over the next several months house prices in certain areas of the country bottom and then you will get bids of 20 or 30 or 40 cents on the dollar for 2006 vintage collateralized debt obligations. You may then get a rally in 2005 vintage CDOs, because the homes are cheaper to maintain than the
rents, especially if people qualify for the new mortgage reduction program. A break in the spiral occurs as people begin to adjust between those bonds that have nothing but worthless junk in them -- and there are plenty of those that use mortgages that are often fraudulent made by all the bad actors in the game circa 2006. Those are never coming back, particularly those with second loans.
What people like Roubini and Krugman might be missing is the ability to build, through earnings and higher stock prices and forbearance, a perfect combination of lower loan charge-offs, more equity, and therefore increased bank solvency.
Or, in other words, those who think that things are not better off since the March bottom strike me as people who were as unrealistically bullish during the 2008 top. You have to adjust if the facts adjust and perhaps Roubini's doing that by saying that "some" banks will be nationalized. If he isn't, I think he will be wrong.