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Roubini warns of 'sovereign' bank failure
February 20, 2009
Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a government-backed bank ''may crack'' as officials try to bail out their financial systems.
''The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,'' Roubini wrote on his Web site today. ''At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.''
Roubini didn't identify any sovereign bank that might run into difficulty.
He also said he sees a 30% chance of an ''L-shaped near-depression'' without ''appropriate and aggressive policy action'' by the US and other major economies to prevent a sovereign bank's failure.
The latest data indicate fourth-quarter gross domestic product in key economies including the US, the euro zone and Japan may be worse than initially reported.
''The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating,'' Roubini said.
The protracted downturn Roubini warned of can only be prevented by ``a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies),'' he said.
Bloomberg News
Roubini warns of 'sovereign' bank failure
February 20, 2009
Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a government-backed bank ''may crack'' as officials try to bail out their financial systems.
''The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,'' Roubini wrote on his Web site today. ''At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.''
Roubini didn't identify any sovereign bank that might run into difficulty.
He also said he sees a 30% chance of an ''L-shaped near-depression'' without ''appropriate and aggressive policy action'' by the US and other major economies to prevent a sovereign bank's failure.
The latest data indicate fourth-quarter gross domestic product in key economies including the US, the euro zone and Japan may be worse than initially reported.
''The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating,'' Roubini said.
The protracted downturn Roubini warned of can only be prevented by ``a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies),'' he said.
Bloomberg News
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