The Stupidity Of "Dr. Doom," Nouriel Roubini

Here's what Nouriel Roubini, pushing for a large-scale nationalization of the banks, told The Wall Street Journal back in February:

Six months from now, even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

Oh, that Dr. Doom! Not yet three months later, the 19 biggest banks have come through the government's stress tests with results Tim Geithner called "reassuring." Nine of the 19 didn't need to raise any new capital at all and are lately on a fast track to repaying their TARP money and ridding themselves of the government's meddling altogether. Nine of the 10 that do need to raise capital are in the process of doing so (or have done so already) without breaking a sweat. (Only GMAC will apparently have to go back to the government.)

If this is the picture of solvency becoming insolvency, I don't see it. More likely, Roubini is 100% wrong. Given the ease with which banks (both stress-tested and not) are raising capital lately, not only is the system not insolvent, it's on its way to becoming overcapitalized. As a bank investor at this point in the cycle, I'm not too concerned about worsening credit. Those problems are well known and more than priced into the stocks. JPM, to pick one of the best-run, least-controversial names in the group, is still just trading at book value.