Nationalizing insolvent US banks is the best solution to avoid a Japan-like scenario in which 'zombie' financial institutions would eat up public resources while the US economy would teeter on the brink of depression, Nouriel Roubini, economics professor NYU and chairman at RGE Monitor told CNBC Tuesday.
Bank shares have fallen on news of abysmal losses and on fears that governments across the world would step in and wipe shareholders out, dragging global stock markets down, but temporary takeover by the state of the sick institutions will insure the survival of the system, Roubini said.
"The market friendly solution is temporary nationalization," Roubini told "Worldwide Exchange".
"Doing something surgical and radical actually may improve the market sentiment," he said. "If we don't do it, we risk ending up like Japan, that had zombie banks for a decade," he added.