Large U.S. Banks May Fail Amid Recession according to Havard Professor

August 19, 2008 by · Leave a Comment
Filed under: Industry News 

More experts are coming out talking about bank failures. Personally it feels like they are trying to start to prepare us so we do not have a panic or run on any banks which will most likely happen anyways. We have published here about the FDIC asking bank failure experts to come out of retirement to help with the coming financial institution failures.

If that is not the writing on the the wall then I don’t know what is. Anyone who is reading this should not have over the FDIC limit of $100,000 or $250,000 (joint accounts) in any one bank until this crisis is over. Hopefully we will see some real leadership in the coming months and years that we do what is needed not what is least painful, its time to take our medicine.

Article:

Credit market turmoil has driven the U.S. into a recession and may topple some of the nation’s biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.

“The worst is yet to come in the U.S.,” Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. “The financial sector needs to shrink; I don’t think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.”

The U.S. housing slump has triggered more than $500 billion of credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Rogoff, 55, said the government should nationalize Fannie Mae and Freddie Mac, the nation’s biggest mortgage-finance companies, which have lost more than 80 percent of market value this year.

Freddie Mac and Fannie Mae “should have been closed down 10 years ago,” he said. “They need to be nationalized, the equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds.”

Last month, President George W. Bush signed into law a housing bill that provides Treasury Secretary Henry Paulson the power to make equity purchases in Fannie Mae and Freddie Mac. Paulson asked for the authority July 13 after the shares of the firms, which own or guarantee almost half of the $12 trillion of U.S. mortgages, slid to the lowest level in more than 17 years.

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