‘Dr. Doom’ sees $3.6 trillion in bank losses

NYU’s econ maven Nouriel Roubini hasn’t yet glimpsed any sign that the system financial crisis is abating.  In the WSJ Tuesday, the “professor who called the housing and credit collapse” and his co-writer paint a horrifying picture of bank losses yet to come, and call for an interesting solution for the government to apply.

  • Getting toxic assets off of bank balance sheets is essential, Roubini writes.  It’ll be a bloodbath for the firms, which will need to reduce dividends as well as cut salaries and bonuses, and there will be failures. Of course, how this is really different from last year, I don’t know.

  • The public relations issues that the ongoing crisis foment are legion — not the least of them will be the tendency of companies to clam up during a time when they most need to speak up. Transparency isn’t situational — it carries myriad risks at any time, but opaqueness also is a risky play.

  • Here are three things the banks should do immediately:

    • 1. Recognize that their employees can help manage the significant customer impacts arising from bad news. Prepare them and their managers and call upon them to reach out to customers all of the time.
    • 2. Take your medicine: The news media is going to focus on the worst aspects of the crisis and its impact on your firm — don’t be surprised by this and don’t try to talk them out of it. The best you can hope for is that your most urgent message (sometimes two or three) can be included in the story.   Don’t ignore “bad press” with either customers or employees — you need to have ongoing dialogue with your stakeholders anyway, so talk about the story and where you felt it went wrong. (but don’t throw rocks at the media, it’ll never work…) The stories are a pretext for conversations.
    • 3. Consistently remind your stakeholders of your commitment to them — and your plans for working through the issues. You gain much more from talking about these things than not.
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