by Henry Meyer and Ayesha Daya
last Updated January 20, 2009
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
“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
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
Congress last year approved a $700 billion rescue fund, of which half
remains to be disbursed.
Financial Bailout - A Necessary Evil
Bank of America Corp., the largest U.S. bank by assets, posted a quarterly
loss of $1.79 billion last week, its first since 1991, and received $138
billion in emergency government funds.
Citigroup Inc. posted an $8.29 billion
fourth-quarter loss, completing its worst year, and plans to split in two
under Chief Executive Officer Vikram Pandit’s plan to rebuild a capital base
eroded by the credit crisis.
“The problems of Citi, Bank of America and
others suggest the system is bankrupt,” Roubini said. “In Europe, it’s
the same thing.”
Stocks in Europe, Canada and Brazil dropped
yesterday on speculation government efforts to shore up the financial
industry will fail to stem the deepening global recession. The U.K.’s Royal
Bank of Scotland Group Plc said it expects to post a loss of as much as 28
billion pounds ($41 billion) for 2008 and the government got ready to raise
its stake in the lender.
Oil prices will trade between $30 and $40 a barrel all year, Roubini
“I see commodities falling overall another
15-20 percent,” Roubini said. “This outlook for commodity prices is
beneficial for oil importers, it’s going to imply that economic recovery
might occur faster, but from the point of view of oil exporters, this
will be very negative.”
Oil has tumbled 77 percent from its July high of
$147.27 as the global economy sinks into recession, straining the budgets of
crude exporters. Saudi Arabia, Oman and Dubai, the second largest sheikdom
in the United Arab Emirates, have said they will post budget deficits this
Crude oil for February delivery fell to $32.70, down 10.4 percent from last
week’s close and the lowest since Dec. 19, on the New York Mercantile
The contract traded at $33.37 a barrel at 10:45
a.m. London time.