Nouriel Roubini Warns Of Possible “Mother Of All Bank Runs,” Urges Morgan Stanley and Goldmam Sachs To Find Foreign Buyers

There’s an old song that warns about nuclear destruction that says, “Brother, when Einstein gets worried, you’d better get worried.”

It has been proven lately, that if the economics professor Nouriel Roubini, “Dr. Doom,” is worried we should also be worried. Today, Roubini has comments on his web-site that shows he is very worried.  His comments are alarming.  Excerpts:

  • It is obvious that the current financial crisis is becoming more severe …
  • This is not just a US financial crisis; it is a global financial crisis hitting institutions in the US, UK, Eurozone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.).
  • In a solvency crisis and credit crisis that goes well beyond illiquidity no one is lending to counterparties as no one trusts any counterparty (even the safest ones) and everyone is hoarding the liquidity that is injected by central banks.
  • Both institutions (Morgan Stanley and Goldman Sachs) are highly recommended to stop dithering and playing for time as delay will be destructive: they should merge now with a large foreign financial institution as no US institution is sound enough and large enough to be a sound merger partner.
  • When investors don’t trust any more even venerable institutions such as Morgan Stanley and Goldman Sachs you know that the financial crisis is as severe as ever and the fear of collapse of counterparties does not spare anyone. When a nuclear option of a monster $700 billion rescue plan is not even able to rally stock markets (as they are all in free fall today) you know this is a global crisis of confidence in the financial system.
  • There is a generalized loss of confidence in financial markets and in financial institutions that no policy action seem to be able to control.
  • The next step of this panic could become the mother of all bank runs, i.e. a run on the trillion dollar plus of the cross border short-term interbank liabilities of the US banking and financial system as foreign banks as starting to worry about the safety of their liquid exposures to US financial institutions;
  • We are thus now in a generalized panic mode and back to the risk of a systemic meltdown of the entire financial system. And US and foreign policy authorities seem to be clueless about what needs to be done next.
This entry was posted in Special Reports. Bookmark the permalink.

One Response to Nouriel Roubini Warns Of Possible “Mother Of All Bank Runs,” Urges Morgan Stanley and Goldmam Sachs To Find Foreign Buyers

  1. Stan Hirtle says:

    Interesting theory. Trust matters. Most of the bad mortgages out there were sold based on trust. People couldn’t understand, evaluate or process all the options so they trusted the person who sold them the bad mortgage. Deregulation and the wild west marketplace where anything goes means that if you trust someone and they took advantage of you, too bad. But if no one trusts anyone, the system falls apart. Complex social systems only work if there is trust. We expect that food will be safe, that drugs will be safe, that the electric will be on. While there are short term profits that can be made by taking advantage of mistrust, eventually it stops working.

Leave a Reply

Your email address will not be published. Required fields are marked *