Prof Does Math, Finds Banking System 'Insolvent'

By Harry Kimball,  Newser Staff
Posted Jan 21, 2009 1:37 PM CST
Investor points to the stock price of HSBC.   (AP Photo)
camera-icon View 2 more images

(Newser) – A New York University professor who predicted the current economic crisis warns that losses at US banks could climb to $3.6 trillion, leaving the whole system essentially bankrupt, Bloomberg reports. Economist Nouriel Roubini argues that since the system has a base capitalization of just $1.4 trillion, if losses get that high the “US banking system is effectively insolvent.” As it stands, financial institutions worldwide have lost or written down more than $1 trillion.

Roubini also sees a sustained contraction of commodity prices, including those for oil, over the next year. Oil at $30 to $40 a barrel will be “beneficial for oil importers,” he tells Bloomberg, “but from the point of view of oil exporters, this will be very negative.” As for the banks,“The problems of Citi, Bank of America, and others suggest the system is bankrupt. In Europe, it’s the same thing.”