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America's Biggest Banks Are Zombies

Many are already insolvent, and feds will need a bolder plan

By Jason Farago,  Newser Staff

Posted Feb 13, 2009 8:30 AM CST
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(Newser) – In the corridors of Wall Street and Washington, a worrying consensus is growing: Some of the nation's largest banks are in fact insolvent. If banks reassessed the value of the complex mortgage-backed securities that taint their balance sheets, they would outweigh all assets on hand, writes Steve Lohr of the New York Times. For some experts, that means that only full-scale nationalization and a sell-off of the toxic debts can end the crisis.

"The historical record shows that you have to do it eventually," said one economist, citing 1980s savings and loan crisis and Japan's lost decade. But while the Treasury continues to hold off from such direct intervention, the losses continue to mount. Nouriel Roubini, a business professor who predicted the crisis, says that the fall in market value of banks' assets will hit $3.6 trillion. "The United States banking system is effectively insolvent," he declared.

This Sept. 15, 2008, file photo shows Robin Radaetz holding a sign in front of the Lehman Brothers headquarters in New York.
This Sept. 15, 2008, file photo shows Robin Radaetz holding a sign in front of the Lehman Brothers headquarters in New York.   (AP Photo/Mary Altaffer,File)
In this 2006 file photo, the headquarters for securities firm Bear Stearns is shown in New York.
In this 2006 file photo, the headquarters for securities firm Bear Stearns is shown in New York.   (AP Photo)
New York University economist Nouriel Roubini speaks at the Council on Foreign Relations in New York on Friday, April 25, 2008. Roubini is also Chairman of Roubini Global Economics.
New York University economist Nouriel Roubini speaks at the Council on Foreign Relations in New York on Friday, April 25, 2008. Roubini is also Chairman of Roubini Global Economics.   (AP Photo/Mark Lennihan)
This Sept. 15, 2008, file photo shows a worker carrying boxes from the offices of Lehman Brothers in Canary Wharf in London.
This Sept. 15, 2008, file photo shows a worker carrying boxes from the offices of Lehman Brothers in Canary Wharf in London.   (AP Photo)
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COMMENTS
Showing 3 of 3 comments
Guest
Feb 13, 2009 9:34 PM CST
It took the Japanese 6 years to do what they had to do. Hopefully it won't take us that long. Read the NY Times today. Japanese finance minister: 'I thought they learned from us. Why are they making the same mistakes?'.
Doctor-Zaius
Feb 13, 2009 9:25 PM CST
Didn't we have a zombie for president for 8 years?
Guest
Feb 12, 2009 9:45 PM CST
sweet

Nationalize the banks - we are all Swedes now
Washington Post

Are America's banks really insolvent?
Seeking Alpha

 
debt • mortgage backed securities • banks • financial crisis • insolvent • toxic assets

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