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Don't Forget About Toxic Assets: Morgan's Roach

While the government focuses on recapitalizing banks, the Treasury Department shouldn't forget about its initial plan to find prices for toxic assets held by banks, Stephen Roach, chairman of Morgan Stanley Asia, told CNBC Wednesday.

"I think the whole TARP concept has worked very differently from how it was envisioned by (Treasury Secretary Henry) Paulson when he approached Congress with a methodology for dealing with toxic assets," Roach told "Worldwide Exchange."

"They've got to move ahead on this price discovery process for toxic assets," he said.

As for the world economy, it will be "very Japanese-like" as deflation risk increases and growth slows, Roach said.

(Watch the accompanying video for the full interview with Stephen Roach...)

"This is certainly an unsettling development," he said.

"The (European Central Bank) has finally woken up to the fact that its compass doesn't point always to inflation" and is aware of deflationary risk, Roach added.