Thread: Roubini: Banking System Effectively Insolvent

Roubini: Banking System Effectively Insolvent

Friday, February 13, 2009 8:00 AM

Some large U.S. banks, may require more aid to stay solvent, the New York Times reported on Friday, citing economists and other finance experts.

A sober assessment of the growing mountain of losses would overwhelm the value of the banks' assets, the paper reported.

"The United States banking system is effectively insolvent," it quoted Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, as saying.

He estimates that total losses on loans by U.S. financial firms and the fall in the market value of their assets will reach $3.6 trillion, up from his previous estimate of $2 trillion, according to the New York Times.

Adam Posen, a senior fellow at the Peterson Institute for International Economics, was quoted as saying that the government would have to play a more prominent role in sorting out the banking industry.

"Putting it off only brings more troubles and higher costs in the long run," he said. "At this moment, the liabilities they have far exceed their assets," he added. "They are insolvent."

None of the experts' research focuses on individual banks, it said, adding that there are exceptions among the 50 largest banks in the country.

Even banks that might technically be insolvent can continue business for a long time, and could recover their financial health when the economy improves, the paper said.

U.S. Treasury Secretary Timothy Geithner on Tuesday unveiled a plan to soak up as much as $1 trillion in bad assets on banks' books and expand a Federal Reserve program to support up to $1 trillion in new loans.

For banks to resume the ample lending needed to restart the wheels of commerce, the answer is a larger, more direct government role than in the Treasury Department's plan outlined this week, the paper cites the economists and experts as saying.

The government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets, the experts told the paper.

http://moneynews.newsmax.com/streettalk ... ode=7A22-1

Well, duh! Banks leverage that $1 of deposit into $30 of loan to people that will never be able to pay, like illegals. This encouragement for every human should own a home in this country, and the deregulation of any standards for those loans led to plain greed by banks and Wall Street. Then packaging those bad loans into bundles and selling pieces of those bundles all over the world is what created this mess. Thank you Clinton and Bush 43!