Will Banks and Financial Markets Recover in 2009? By Nouriel Roubini

[Better Believe It]

Will Banks and Financial Markets Recover in 2009?
By Nouriel Roubini
Nouriel Roubini is Professor of Economics at the Stern School of Business, New York University and Chairman of RGE Monitor (www.rgemonitor.com), an economic and financial consultancy.
27 December 2008
The Guatemala Times

The United States will certainly experience its worst recession in decades, a deep and protracted contraction lasting about 24 months through the end of 2009. Moreover, the entire global economy will contract. There will be recession in the euro zone, the United Kingdom, Continental Europe, Canada, Japan, and the other advanced economies. There is also a risk of a hard landing for emerging-market economies, as trade, financial, and currency links transmit real and financial shocks to them.

Today's global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it. America's credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans, and student loans. There was also excess in the securitized products that converted these debts into toxic financial derivatives; in borrowing by local governments; in financing for leveraged buyouts that should never have occurred; in corporate bonds that will now suffer massive losses in a surge of defaults; in the dangerous and unregulated credit default swap market.

Moreover, these pathologies were not confined to the US. There were housing bubbles in many other countries, fueled by excessive cheap lending that did not reflect underlying risks. There was also a commodity bubble and a private equity and hedge funds bubble. Indeed, we now see the demise of the shadow banking system, the complex of non-bank financial institutions that looked like banks as they borrowed short term and in liquid ways, leveraged a lot, and invested in longer term and illiquid ways.

While the risk of a total systemic financial meltdown has been reduced by the actions of the G-7 and other economies to backstop their financial systems, severe vulnerabilities remain. The credit crunch will get worse; deleveraging will continue, as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus causing more price falls and driving more insolvent financial institutions out of business. A few emerging-market economies will certainly enter a full-blown financial crisis.

So 2009 will be a painful year of global recession and further financial stresses, losses, and bankruptcies. Only aggressive, coordinated, and effective policy actions by advanced and emerging-market countries can ensure that the global economy recovers in 2010, rather than entering a more protracted period of economic stagnation.

Please read the full article at:

http://www.guatemala-times.com/opinion/175-year-end/663-will-banks-and-financial-markets-recover-in-2009.html

[The_Casual_Observer]

1. If it's going to be that bad, why would it only last 24 months?

What do they base that prediction on?

[Better Believe It]

2. 24 months is the minimum if the capitalist governments make all the right moves.

And it could last a lot longer and be much deeper as Roubini has consistently warned.

[lumberjack_jeff]

3. "it'll suck" is a pretty safe bet. "It'll recover in 24 months" is baseless optimism. n/t

[Better Believe It]

4. Haven't been reading Roubini's articles?

He has written several times that the "recovery" will seem like we are still in a deep recession.