'A Generalised Meltdown of Financial Institutions'

international | anti-capitalism | other press Monday November 26, 2007 16:50 by Aragon

Severest economic crash ever imminent

If predictions by Professor Nouriel Roubini, of the Stern School of Economics are correct - and some say he is the most accurate predictor of world economic perofrmance - then the world is in for a very rough ride for the forseeable future. The capitalist glutton fest of the last 15 years is about to catch up - and guess who is going to have to pay for it all?

The quote below relates to the US economy but see full article at the link for the global context.

"It is increasingly clear by now that a severe U.S. recession is inevitable in the next few months...I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before. In this extreme scenario whose likelihood is increasing we could see a generalized run on some banks; and runs on a couple of weaker (non-bank) broker dealers that may go bankrupt with severe and systemic ripple effects on a mass of highly leveraged derivative instruments that will lead to a seizure of the derivatives markets... massive losses on money market funds with a run on both those sponsored by banks and those not sponsored by banks; ..ever growing defaults and losses ($500 billion plus) in subprime, near prime and prime mortgages with severe knock-on effect on the RMBS and CDOs market; massive losses in consumer credit (auto loans, credit cards); severe problems and losses in commercial real estate...; the drying up of liquidity and credit in a variety of asset backed securities putting the entire model of securitization at risk; runs on hedge funds and other financial institutions that do not have access to the Fed's lender of last resort support; a sharp increase in corporate defaults and credit spreads; and a massive process of re-intermediation into the banking system of activities that were until now altogether securitized." (Nouriel Roubini's Global EconoMonitor)

Well worth a read:

http://www.informationclearinghouse.info/article18777.htm