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Roubini: U.S. Banking System Insolvent, Another $2.5T of Losses Coming

Posted Jan 20, 2009 10:17am EST by Henry Blodget in Newsmakers, Recession, Banking
Related: XLF, C, BAC, JPM, MS, WFC, ^DJI

From Clusterstock:

A couple of years ago, when Nouriel Roubini predicted that U.S. financial-system losses would total $1 trillion, everyone thought he was insane.  He has since revised his estimate.  Now he's looking for $3.6 trillion:

Bloomberg: U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Losses and writedowns at financial companies worldwide have risen to more than $1 trillion since the U.S. subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.

President Barack Obama will have to use as much as $1 trillion of public funds to shore up the capitalization of the banking sector, following the $350 billion injection by the Bush administration, Roubini told Bloomberg News. Congress last year approved a $700 billion rescue fund, of which half remains to be disbursed.

See Also: Why Are We So Afraid To Fix Banks The Right Way?

 

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