Jan Dahinten, Reuters wrote:SINGAPORE (Reuters) - The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.
"The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.
"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.
"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.
"Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."
Rogoff's comments come as investors dumped shares of the largest U.S. home funding companies Fannie Mae and Freddie Mac on Monday after a newspaper report said government officials may have no choice but to effectively nationalize the U.S. housing finance titans.
A government move to recapitalize the two companies by injecting funds could wipe out existing common stock holders, the weekend Barron's story said. Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses.
Rogoff said multi-billion dollar investments by sovereign wealth funds from Asia and the Middle East in western financial firms may not necessarily result in large profits because they had not taken into account the broader market conditions that the industry faces.
"There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them.
"That view neglects the point that the financial system has become very bloated in size and needed to shrink," Rogoff told the conference in Singapore, whose wealth funds GIC and Temasek have invested billions in Merrill Lynch and Citigroup
In response to the sharp U.S. housing retrenchment and turmoil in credit markets, the U.S. Federal Reserve has reduced interest rates by a cumulative 3.25 percentage points to 2 percent since mid-September.
Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as "dramatically" as it did.
"Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States."
(Editing by Neil Chatterjee)
-Emphasis (highlights) is mine.
-So according to this person the U.S. banking system is still in for a nasty couple years. I read similar things from SDnet posters. Hopefully, some of the more knowledgeable ones will lend their insight and/or links for more analysis.
-I'm also interested in the effect this will have on the U.S. dollar if anyone knows something and/or has a few good links.
It would be nice to know what banks are at risk and what can be done about it. All I see is fear and insecurity about the future. The answer to the nation's financial problems is not going to be found in the next five years or longer. I don't like the odds of a easy solution popping up overnight.
Well as long as there's less than 100,000 in your account, you're covered. Still sucks to lose your bank though, I would imagine.
Vendetta wrote:Richard Gatling was a pioneer in US national healthcare. On discovering that most soldiers during the American Civil War were dying of disease rather than gunshots, he turned his mind to, rather than providing better sanitary conditions and medical care for troops, creating a machine to make sure they got shot faster.
Einhander Sn0m4n wrote:I hope it's not Chase (I know, they're the ass end of the thing that ate Bear Stearns).
If it is Chase then I just pull my (very limited) funds over to USAA. I get better rates, and they have worldwide Free ATM access. I've considered doing so already, but I like having a physical place to go and bitch to if something gets screwed up.
"I believe in the future. It is wonderful because it stands on what has been achieved." - Sergei Korolev
Natorgator wrote:
No way. They're too big and too well-funded. If it's anyone, it will be WM.
Fannie Mae and Freddie Mac were too big and well-funded as well.
Which is they have yet to fail. I doubt that the government would let bank of America to completely fail. Worst case scenario the company is sold off to other financial companies with government subsidy.
Brotherhood of the Monkey @( !.! )@ To give anything less than your best is to sacrifice the gift. ~Steve Prefontaine Aoccdrnig to rscheearch at an Elingsh uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht frist and lsat ltteer are in the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae we do not raed ervey lteter by it slef but the wrod as a wlohe.
ArmorPierce wrote:
Which is they have yet to fail. I doubt that the government would let bank of America to completely fail. Worst case scenario the company is sold off to other financial companies with government subsidy.
Right now the only reason they haven't fallen is because they're being bolstered by the government. If the government wasn't willing to bail them out they certainly would have.
"It's you Americans. There's something about nipples you hate. If this were Germany, we'd be romping around naked on the stage here."
Einhander Sn0m4n wrote:I hope it's not Chase (I know, they're the ass end of the thing that ate Bear Stearns).
If it is Chase then I just pull my (very limited) funds over to USAA. I get better rates, and they have worldwide Free ATM access. I've considered doing so already, but I like having a physical place to go and bitch to if something gets screwed up.
I highly doubt it will be Chase. They're in extremely good shape compared to the rest of America's banks.
Stargate Nerd wrote:I hope it's not Washington Mutual.
It'll almost certainly be Bank of America.
BULLSHIT. Countrywide is not going to sink Bank of America. Where the hell are you getting your information from? This assertion of yours is totally without merit.
General Zod wrote:Fannie Mae and Freddie Mac were too big and well-funded as well.
There's a big difference between a diversified financial institution like a bank and a company which pretty much only does mortgages.
Einhander Sn0m4n wrote:I hope it's not Chase (I know, they're the ass end of the thing that ate Bear Stearns).
If it is Chase then I just pull my (very limited) funds over to USAA. I get better rates, and they have worldwide Free ATM access. I've considered doing so already, but I like having a physical place to go and bitch to if something gets screwed up.
I highly doubt it will be Chase. They're in extremely good shape compared to the rest of America's banks.
From what little I know about finance, Jamie Dimon and his predecessors have earned their big bucks in steering the bank away from the mortgage rocks and shoals that are now threatening others.
"You say that it is your custom to burn widows. Very well. We also have a custom: when men burn a woman alive, we tie a rope around their necks and we hang them. Build your funeral pyre; beside it, my carpenters will build a gallows. You may follow your custom. And then we will follow ours."- General Sir Charles Napier
Lehman Brothers is the one that is most in danger according to the economics reporters for Finnish MTV3 and they have a fairly good grasp of things most of the time.
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Edi wrote:Lehman Brothers is the one that is most in danger according to the economics reporters for Finnish MTV3 and they have a fairly good grasp of things most of the time.
Rumors have been circulating about Lehman's demise since the mid 90's...still it wouldn't surprise me much if this were true. Investment banks can be very tricky to predict and when they fall, they tend to do so quickly and spectacularly.
The problem with investment banking is that although they claim to have excellent processes that allow them to properly "hedge" their portfolios, the truth of the matter is that it is remarkably easy for even a large investment bank to over expose themselves in a couple of sectors which puts the whole company at risk during shaky markets. We've seen these sorts of meltdowns before and we will see them again.
Traditional banks are a different animal though and they tend to be a lot more conservative in their investments and holdings. Also, banks don't depend on the sort of leveraging that is required to operate a successful investment bank so a reversal of fortunes on a single group of investments won't tank the entire institution.
as someone who makes a cash incentive for every bank account my team opens, and who competes with a B of A directly across the street, I welcome this failure. Welcome to the dark side of capitalism, Bank of America.
I got my hands on a memo B of A was sending yo it's payroll customers. If your pay check is drawn on B of A, and you are not an account holder, they are charging $6 to cash a check.
"This business will get out of control. It will get out of control and we’ll be lucky to live through it.” -Tom Clancy
Winston Blake wrote:What effect might such a collapse have on banks in, say, Australia?
Probably means that banks might make less loans for companies who do business in the US since there will be less business from the US.
However, unless they have sizable holdings in US banks and related, they ought to be fairly well shielded. I can't say the same for Temasek and GIC in Singapore though.
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The Kernel wrote:The problem with investment banking is that although they claim to have excellent processes that allow them to properly "hedge" their portfolios, the truth of the matter is that it is remarkably easy for even a large investment bank to over expose themselves in a couple of sectors which puts the whole company at risk during shaky markets. We've seen these sorts of meltdowns before and we will see them again.
Traditional banks are a different animal though and they tend to be a lot more conservative in their investments and holdings. Also, banks don't depend on the sort of leveraging that is required to operate a successful investment bank so a reversal of fortunes on a single group of investments won't tank the entire institution.
Problem is traditional banks have acted a lot like investment banks and hedge funds in recent years. A lot of them went balls-deep into housing & real estate then leveraged up way beyond the traditional 10:1 ratio for commercial banks, I'm seeing anywhere from 15:1 all the way up to 30:1 which is getting into hedgefund territory. If their frozen & non-performing assets are taken into account that ratio goes up even more. Take a look through this list which a guy on another forum maintains, it's not pretty.
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Say, do you want it to be a threesome with your wife? Or a foursome with your wife and sister-in-law? I'm up for either.
ArmorPierce wrote:
Which is they have yet to fail. I doubt that the government would let bank of America to completely fail. Worst case scenario the company is sold off to other financial companies with government subsidy.
Right now the only reason they haven't fallen is because they're being bolstered by the government. If the government wasn't willing to bail them out they certainly would have.
Exactly, the government won't let them fail.
Brotherhood of the Monkey @( !.! )@ To give anything less than your best is to sacrifice the gift. ~Steve Prefontaine Aoccdrnig to rscheearch at an Elingsh uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht frist and lsat ltteer are in the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae we do not raed ervey lteter by it slef but the wrod as a wlohe.
The government won't let anyone fail, at least any big companies, anyway. It's more than them just being "rich", but big companies are seen as providing lots of jobs...
The more a company spreads out, and quickly, the more voting districts they're in. Then, when times are hard, they can run to not just one Congressman, but several, and moan about how all sorts of jobs will be lost if their company goes under due to their bad business decisions.
Well, what Congressman wants to have a bunch of jobs lost in his district? No one that wants re-election, I assure you. So you get these several politicans all voting for bailouts to save shoddy companies that should be allowed to fail for their fuckups.
End result, absolutely no accountability for bad business decisions.
Something about Libertarianism always bothered me. Then one day, I realized what it was:
Libertarian philosophy can be boiled down to the phrase, "Work Will Make You Free."
In Libertarianism, there is no Government, so the Bosses are free to exploit the Workers.
In Communism, there is no Government, so the Workers are free to exploit the Bosses.
So in Libertarianism, man exploits man, but in Communism, its the other way around! If all you want to do is have some harmless, mindless fun, go H3RE INST3ADZ0RZ!! Grrr! Fight my Brute, you pansy!
