DUBAI - 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 yesterday, after a visit to Istanbul. "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 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 Bloomberg data. Bank of America, 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 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 the eroded capital base.
"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 Monday 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 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 predicted. "I see commodities falling overall another 15-20 percent," he said. "This outlook for commodity prices is beneficial for oil importers, but ... for oil exporters, this will be very negative."