Sunday, September 14, 2008
Has Nouriel Roubini ever been on CNBC? That question just came to mind as he rattled off the many reasons why financial markets are likely to get worse before they get better in this Bloomberg interview. This is not the sort of thing you'd see on CNBC.
Right out of the gate, it's a litany of what's wrong on Wall Street and some dire predictions of how we move forward from here:
It's a financial disaster. We're in the middle of a severe financial and banking crisis and it's going to get worse. A few months ago I said that most broker/dealers were going to collapse. First Bear Stearns in March, today Lehman, tomorrow it's going to be Merrill in a merge with Bank of America. I don't think that Morgan Stanley or Goldman Sachs will be able to remain independent. The entire business model for all of them is fundamentally flawed at this point. They'll have to merge with a larger financial institution.
This was not just a subprime mortgage problem. It was subprime, it was near-prime, it was prime, it was home equity loans, it was CDOs, it was MBSs, commercial real estate, credit cards, auto loans, student loans, leveraged loans, corporate bonds, muni bonds. You're liable to end up with 2 trillion dollars in credit losses. Of course, most of these financial institutions are insolvent. They could raise capital, but it's never been enough because the losses are much bigger than their ability to raise capital, so all of them will have to essentially merge with other financial institutions. They're not going to survive.
All of these developments are putting a damper on the dollar's recent surge. It may well be that the greenback isn't less bad than all the other paper money in the world after all.