NEW YORK Aug 3 The United States is in the
second inning of a recession that will last for at least 18
months and help kill off hundreds of banks, influential
economist and New York University Professor Nouriel Roubini
told Barron's in Sunday's edition.
Taxpayers will pay a big price for helping bail out the
rest of the financial services industry as well, Roubini said
-- at least $1 trillion and more likely $2 trillion.
The banks will become insolvent because of mounting losses
as a result of the housing bust and because they have only
written down their subprime loans so far, he said. Still in
front of them are their consumer-credit losses, for which they
lack the reserves, Barron's reported.
He also said there are hundreds of millions of dollars
outstanding in home-equity loans that could be worth zero,
U.S. consumers, meanwhile, are "shopped out" and saving
less, while the Federal Reserve's performance in handling the
crisis has been poor, Roubini said, because it failed to see
that the problem extended beyond subprime mortgage debt.
Now, Roubini told Barron's, the government is
overregulating, bailing out troubled participants and
intervening in every market.
"The regulators should investigate themselves for bailing
out Fannie Mae FNM.N and Freddie Mac FRE.N, the creditors
of Bear Stearns and the financial system with new lending
facilities. They have swapped U.S. Treasury bonds for toxic
securities," he told Barron's. "It is privatizing the gains and
profits, and socializing the losses as usual. This is socialism
for Wall Street and the rich."
He said that sometimes it is necessary to use public money
to rescue institutions, but in a way that does not bail out the
people who made the mistakes. "In each one of these episodes,
the government bailed out the shareholders, the bondholders,
and to some degree, management," Roubini told Barron's.
As for the banks that will go bankrupt, they will include
community banks that finance homes, stores, downtown areas,
commercial real estate and other mainstays of U.S. towns and
cities, Roubini said.
"Of three dozen or so medium-sized regional banks, a good
third are in distress," he told Barron's, saying half of the
group could go bankrupt. Some big banks could wind up
insolvent, he added, but said they might be deemed too big to
Nouriel stressed that he is "quite bullish" about the state
of the global economy and that he is positive about the medium
and long term.
(Reporting by Robert MacMillan, editing by Martin Golan)