Hundreds of banks will fail, Roubini tells Barron's

Reuters ^ | 08/03/08

[TigerLikesRooster]

Hundreds of banks will fail, Roubini tells Barron's

Sun Aug 3, 2008 3:52pm EDT

NEW YORK, Aug 3 (Reuters) - The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron's in Sunday's edition.

Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said -- at least $1 trillion and more likely $2 trillion.

The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron's reported.

He also said there are hundreds of millions of dollars outstanding in home-equity loans that could be worth zero, too.

U.S. consumers, meanwhile, are "shopped out" and saving less, while the Federal Reserve's performance in handling the crisis has been poor, Roubini said, because it failed to see that the problem extended beyond

[TigerLikesRooster]

Ping!

[BunnySlippers]

The last bank crunch we had about 1,000 fail, wasn’t it?
Lots of banks that go under are small community banks.

[Red Steel]

He also said there are hundreds of millions of dollars outstanding in home-equity loans that could be worth zero, too.

That many people are about to default on their loans?

[Porterville]

Wow, I thought we were in a recession 3 years ago according to the MSM.... I bet if Obama wins NBC news will report us having the greastes economy ever!!

[TigerLikesRooster]

Because big banks would "be too big to fail." paying out deposit insurances and bailing out big banks would cost a lot of money. We would either have much higher taxes or higher inflation or massive sale of U.S. assets. If we avoid higher taxes and massive bank failures, the outcome would be both huge inflation and selling off U.S. assets to other countries.

Based on this article, Roubini mellowed out. I noticed that just about everybody who sent out dire warnings eventually mellows out. I cannot exclude the possibility of being leaned on. Actually, I wondered how Roubini managed to go this far.

[BunnySlippers]

Ah ... I just got my $100,000 out of IndyMac two weeks ago. I’d been in for 3 weeks. Didn’t think it would fail.

[OKIEDOC]

Outstanding.

I remember when Carter was president that we had 16% interest rates, high unemployment and long gas lines, something called malaise yet the the MSM did not seem to mind.

Correct me if I am wrong?

[BJungNan]

When do we see the numbers that show we are in the 1st inning of a recession? Those numbers are not out yet, right? That’s not to say there are not hard times out there, just wonder how this guy calls it the second inning already.

[TigerLikesRooster]

It is possible to keep up growth rate if you dump money into economy. The economy grows(nominally) but inflation goes up more. The result is negative growth. Especially 0.7% of 1.9% GDP growth lately is from government activities.

[BJungNan]

So what is your take on where the U.S economy is headed? No recession, recession, deep recession, depression, total economic collapse?

[JerseyHighlander]

NYU Professor Roubini and his colleague Brad Setser of Oxford have been way ahead of the pundits' and economists' curve for much of the last three years.  http://www.rgemonitor.com/blog/roubini/222636/

Also this was posted once already: http://www.freerepublic.com/focus/f-bloggers/2046158/posts

 

[PDF]

Bretton Woods:

File Format: PDF/Adobe Acrobat - View as HTML
The Risk of a Hard Landing in 2005-2006. Nouriel Roubini. Stern School of Business. New York University,. NBER and CEPR. and. Brad Setser ...
www.stern.nyu.edu/~nroubini/papers/BW2-Unraveling-Roubini-Setser.pdf - Similar pages

RGE - A hard landing in 2006 – just not in the US?

Access to Nouriel Roubini's Global EconoMonitor is reserved for registered users, ... 2008-05-15 23:43:13; Adjusting to $125 a barrel oil, by Brad Setser ...
www.rgemonitor.com/blog/setser/132418 - 46k - Cached - Similar pages

 

[TigerLikesRooster]

Protracted stagflation. Prices would stay high (or higher.) Plummeting consumer demand. Debt level continue to be high. Most money earned will be diverted to pay out interests of debt.

Fed would go between pumping more money(liquidity,) which leads to higher inflation, and tightening money supply, sliding to even worse recession. They are in a catch 22. There are simply too much debts in U.S. economy to wean them out as they did in S&L crisis in early 90's. Even today, American governments are paying out the bailout money from that era(40 year debt.)

[John Valentine]

Since I have performing stocks, a good secure job, and plenty of cash, aren’t these good times coming with bargains galore in the housing market available to credit worthy buyers with big down paayments or buying for cash?

[JerseyHighlander]

If Greenspan and several others hadn’t tinkered with the economic reporting system during Greenspan’s tenure as chief, i.e. if the Fed used the same system that were used under Volcker’s tenure as Fed chief, we’d be in our 3rd or 4th quarter of recession already.

You are witnessing a slow motion devaluation of government debts by increased money supply and just as the retirees of Russia in 1998 woke up to their state pensions not being worth little more than a loaf of bread a week, the US is going through the process of devaluing the currency while maintaining the book value of debts.

SS, Medicare, Medicaid, Federal Employee pensions, and every other US Federal debt that is indexed to the Cost of living and inflation indexes are being systematically written down.

[TigerLikesRooster]

Correction:

Fed would go back and forth between pumping more money(liquidity,) which leads to higher inflation, and tightening money supply, slidingleading to even worse recession.

[TigerLikesRooster]

If you are financially well-secured, of course this would be a great opportunity to snap up some item in housing market. Especially it is “for-cash” deal(buying the house outright.)

[AmericanInTokyo]

It goes the reverse. Once Obama takes over, all the rosy picture Republicans in the cheerleading squad, will drone on and on and one about how lousy the economy is.

It is all politics.

The truth is that Democrats or Republicans in control, it does not matter. The economy sucks. You would have to be a dolt not to catch it.

[JerseyHighlander]

Too big to fail? Or too large to save? Thinking about the US one year into the subprime crisis

Posted on Thursday, July 24th, 2008 by bsetser

Emerging market financial crises in the 1990s followed a fairly consistent pattern.

The country lost access to external financing.

The sector of the economy that had a large need for financing – firms in Asia, the government elsewhere – had to dramatically reduce its need for financing. Asian investment collapsed. Argentina swung from a fiscal deficit to a fiscal surplus (helped along by its default on its external debt). Turkey began to run large primary surpluses.

Financial balance sheets shrank; credit dried up.

The country’s currency fell sharply. And its current account swung into balance, if not a surplus.

That process was incredibly painful. Falls in GDP of 5% or more were not unknown. It also meant that after a year or so, most emerging markets had reached bottom. Their economies had adjusted, as had their currencies.

A year – almost – after its crisis, the US economy hasn’t endured a similar period of adjustment. Economic activity has slumped, but not fallen off a cliff. US households are pinched (and unhappy), but spending hasn’t collapsed. The US current account deficit has fallen, but not by much – the rise in the oil deficit has offset the fall in the non-oil deficit. Banks have depleted their capital, but I don’t think that they have – in aggregate – shrank their balance sheets. Then again some of the expansion of their balance sheets may not have been entirely voluntary, as off-balance sheet assets and liabilities moved on to the formal balance sheet.

Residential investment has fallen significantly as a share of GDP.

But in other ways, the US hasn’t adjusted.

Read the rest of this entry »

[TigerLikesRooster]

Right on.:-)