Nowhere Near End of Crisis: Dr. Doom

Nowhere Near End of Crisis: Dr. Doom
By: Reuters 20 Feb 2009

Nouriel Roubini, one of the few economists who foretold much of the current financial turmoil, Friday said the United States is nowhere near the end of the banking and credit crisis.

"We are still in the third and fourth innings," Roubini told Reuters in an interview, using a baseball analogy to drive home his view that the current cycle is only nearing its midpoint.

"And it's getting worse," said Roubini, a professor at New York University's Stern School of Business and chairman of RGE Monitor, an independent economic research firm.

On Feb. 10, Treasury Secretary Timothy Geithner unveiled his newest bailout plan for banks, including the government's so-called "stress tests" involving all banks with more than $100 billion in capital. Regulators will analyze the banks' books far more closely than previously to see if they have the capital to endure worsening conditions.

"It is the step to form an objective way to decide which banks are illiquid and which ones are insolvent and to take over the insolvent bank," Roubini said. "We have to take over some banks."

Bank of America [BAC 3.79 -0.14 (-3.56%) ] and Citigroup [C 1.95 -0.56 (-22.31%) ] shares plummeted for a sixth straight day Friday, hammered by fears that the U.S. government could nationalize the banks, wiping out shareholders.

Nationalization or receivership of a bank need not be a permanent issue, Roubini added.

"I think of it being a temporary measure -- take them over and clean them up and sell them back to the private sector," Roubini said. "No one is in favor of long-term government ownership of the banking system."

For example, IndyMac was bankrupt and taken over in July.

"Less than six months later the very same group of private investors was willing to buy back the assets and the deposits," he said.

"So it doesn't have to be under government control for years and years. You can do it actually relatively quickly."

All told, Roubini said he sees negative economic growth throughout 2009, predicting that the unemployment rate could reach roughly 10 percent in the next year.

http://www.cnbc.com/id/29301301

Roubini warns US banking system effectively insolvent

Roubini warns US banking system effectively insolvent

Losses in the US financial system may reach $3.6 trillion (£2.6 trillion) before the credit crisis is over, suggesting the country's banks are "effectively insolvent", according to the man who predicted the current economic meltdown.

By James Quinn, Wall Street CorrespondentLast Updated: 6:26PM GMT 20 Jan 2009

Roubini warns US banking system effectively insolvent

Professor Nouriel Roubini said half of the estimated losses would come from banks and broker-dealers, placing further pressures on an already heavily-laden system.
"It means the US banking system is effectively insolvent because it starts with a capital of $1,400bn. This is a systemic banking crisis," he said.
To date, global losses and write-downs as a result of the crisis, which was triggered by the collapse of the US sub-prime mortgage sector, total about $1 trillion.
The New York University professor's comments were in part responsible for pushing banking shares lower on Tuesday. Citigroup fell 11pc and Bank of America lost 15pc.
Banks were also impacted by news of heavy losses at institutional money manager State Street's commercial paper and investment arm, sending its' shares down as much as 50pc, its worst one-day slump in 24 years.
Speaking in Dubai, Professor Roubini said: "The problems of Citi, Bank of America and others suggest the system is bankrupt. In Europe, it's the same thing."
His warning comes just a day after the UK's second phase in its own banking bail-out, and after Bank of America, Merrill Lynch and Citi last week reported almost $26bn of fourth-quarter losses.
"We have got a crippled financial sector, not only in the US but across the globe," said Keith Wirtz, chief investment officer of Fifth Third Asset Management.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4299466/Roubini-warns-US-banking-system-effectively-insolvent.html