Tuesday, January 20, 2009

Roubini Predicts U.S. Losses May Reach $3.6 Trillion

This is some sobering news.
“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.”

One has to wonder, is this number to high or to low? The simple fact that a guy as bright as Roubini is using words like "the U.S. banking system is effectively insolvent" is bearish. I doubt the market has discounted news like this.

They continue to discuss "toxic" assets on CNBC with the hope that the U.S. government will buy them. Well this won't be like the savings and loan mess when the RTC was able to package and sell real estate. The number of outstanding credit default swaps dwarfs anything we have ever seen. And much of that paper is "phoney baloney paper" that had one use--create fee income and paint the books. Now analysts want us to back the same executives that received enormous bonuses and sold inflated stock for personal gains. Much of the enormous profits they reported came from phantom income derived from now "toxic assets".

Roubini Predicts U.S. Losses May Reach $3.6 Trillion

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