Wednesday, 20th August 2008
Economist says large US bank collapse ahead
Reports say government officials may have no choice but to effectively nationalise the US housing finance titans.
The worst of the global financial crisis is yet to come and a large US bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said yesterday.
"The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is yet to come'," he told a financial conference.
"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Prof. Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.
"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.
"Probably Fannie Mae and Freddie Mac - despite what US Treasury Secretary Hank Paulson said - these giant mortgage guarantee agencies are not going to exist in their present form in a few years."
Prof. Rogoff's comments come as investors dumped shares of the largest US home funding companies Fannie Mae and Freddie Mac on Monday after a newspaper report said government officials may have no choice but to effectively nationalise the US housing finance titans.
A government move to recapitalise the two companies by injecting funds could wipe out existing common stock holders, the weekend Barron's story said. Preferred shareholders and even holders of the two government-sponsored entities' £10.2 billion of subordinated debt would also suffer losses.
Prof. Rogoff said multi-billion-dollar investments by sovereign wealth funds from Asia and the Middle East in western financial firms may not necessarily result in large profits because they had not taken into account the broader market conditions that the industry faces.
"There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them.
"That view neglects the point that the financial system had become very bloated in size and needed to shrink," Prof. Rogoff told the conference in Singapore, whose wealth funds GIC and Temasek have invested billions in Merrill Lynch and Citigroup.
In response to the sharp US housing retrenchment and turmoil in credit markets, the US Federal Reserve has reduced interest rates by a cumulative 3.25 percentage points to two per cent since mid-September.
Prof. Rogoff said the US Federal Reserve was wrong to cut interest rates as "dramatically" as it did.
"Cutting interest rates is going to lead to a lot of inflation in the next few years in the US."
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Comments
Oil prices have gone down (and previously upwards) due to speculation. Although China had made a strong demand for oil in the run off to the Olympics and now has lowered its demand, the demand from India and Brazil increased significantly. In conclusion the global demand hasn't diminished recently and thus proving that the prices volatility was mainly due to speculation.
@ Ed Strake
@Charles Camilleri
On Friday, 14th December 2007 MEP Dr. John Attard Montalto wrote a factual article that may interest those who seriously wish to be aware of the core problem of Africa and other places
Here I quote a paragraph - (The scramble for Africa has started all over again. In the colonial period, European nation-states competed between themselves. After World War II, the US permitted Europe to continue to dominate the continent, on the reckoning that the boost to the European economies would boost trade with the US itself.)
@ J Portelli
The USA dirty linens are hung for all to see, and they really smell horribly. No need for further comments
Do you know why, and how much the German government pays (and will continue to pay until 2050) the USA annually?
Although you make some interesting points, a majority of the others you make are just rhetorical hyperbole. You must watch alot of Al jeezera. Most of us, including 68% of all Americans think George W. Bush, is not only a disgrace, but should go down in US history as the worst US president of all time. I hope he does. But to suggest , the way you do, that the US is evil, and that Russia or China will save the world from the evil grasps of the US, begs me to ask one question. What planet do you live on? And by the way - if it wasnt for the US, you would be speaking German right now, wearing a swat stika on your sleeve, or maybe Russian, either way, living in some god forsaken facist police state - take your pick. !!!!
For a change, USA have their own oil which most of it is still reserved. And when there is a 'war' in a country, Bush reasoning is - "Do you have oil? If yes we come and help you, if no keep fighting on your own, or else we can always invent a war - Iraq style. Then once we bombard your cities and kill so many citizens, our USA companies will come and rebuild your cities with your own money and your own oil." - Bush
@ Charles Camilleri
‘‘Instead of jibing the USA which has sacrificed its sons and spent millions of dollars in defending democracy’
Do I have to laugh or cry?
Iraq, once was a cradle of civilization, now Iraq is off-history. Thank to USA!
Do you know how many Iraqis has been killed? How many millions of Iraqis are displaced?
Iraq has become an experience no country would love to import!
Simply, have a look at the list of names of USA casualties at wars; you will notice that, most names are foreign names not Americans.
After a price hike 147 USD Pb, the oil price went down to 112-114 USD pb? Could you provide clarification for this price drop please? If you do, we will probably understand why the oil prices went up!
America’s policy in general and the foreign policy in particular is based on: blackmailing and thieving other country’s wealth. The former supports the latter.
Any body knows WHY, and how much the German government pays (and will continue to pay until 2050) the USA annually? Billions of dollars!
‘Malta has been the beneficiary …’
Malta will be providing the USA land to build a larger USA embassy. This Embassy ‘military base’ would be providing the USA the opportunity to gather Data on peoples to help what USA (originally made and now promote) as the war on terrorism. Personally, I will not be surprised if Ben laden has been sleeping in the white house during the past years.
The new embassy will also serve as a liaison office with USA war agent- Israel.
USA number one priority is controlling fuel resources world wide by using military power. To do so, now, part of the USA soldiers sinking in Afghanistan, and the other parts are getting stewed in Iraq.
Bye the way, most of USA soldiers in Iraq and Afghanistan are citizens to be!
What really upsets me about critics of US foreign policy is their hypocritical, myopic approach.
They seem to take a negative perspective and trash the US for what they think the motives are, then have their leaders slide their hand out for US assistance. Malta is no exception.
The US isn't perfect. No country is. But it's expends huge monetary resources and human life for world peace and humanitarian assistance. Malta has been the beneficiary more than
once and at my last check, the US is not importing oil from Malta. It didn't import oil from all
the countries assisted after the tsunami either. Don't think it's importing oil from Georgia where the US was instrumental in a cease fire recently.
I wish the US would step down as world cop though. Why bother?
Perhaps Malta should resolve the next world crisis.
Ed
PS I'm sure Bush is responsible for the oil crisis, not the increased demand from India and China and the shrinking oil supply. Yea right.
@John Zammit
@M Mifsud
USA based on blood and manslaughters- what about what happened with the Indian rouge?
USA would do any thing to secure fuel resources (this is why there are destructions in the Middles East)
USA only understands one language: violence and wars, and war mongering. .
The whole world populations can demonstrate for peace 24/7/365. But what the white houses (criminals’ hub) decide must work.
No one ‘yet’ can deter the thuggers on the other side of the Atlantic, hopefully Russia and emerging power such as China or India would.