The credit-market slump could take a further toll on the largest US banks, a former chief economist of the International Monetary Fund tells Bloomberg. Claiming “the worst is yet to come,” Kenneth Rogoff says the financial sector “needs to shrink” before the economy will recover, and that institutions must be allowed to collapse as a matter of integrity.
“You can't just have an industry where they make giant profits or they get bailed out,” he adds. Rogoff expects the recession to worsen, with the possibility of another major bank going under. The comments follow recent statements by Treasury Secretary Henry Paulson that the US needs regulatory reform that would let institutions go bust without compromising overall economic stability.