More big banks to turn bankrupt, to be nationalized

By SiliconIndia   |   Monday, 30 March 2009, 08:22 Hrs   |    3 Comments
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Washington: The economic downturn will bear testimony of more major banks turning bankrupt and being nationalized. "The stock market is a bit ahead of the real macroeconomic and financial news. We'll have some major banks going belly up that will need to be taken over," said Nouriel Roubini, Professor at New York's Stern School of Business.

Roubini also predicts that the U.S. government will nationalize the big banks amid the economic contraction he sees continuing through the end of 2009 as U.S. Treasury yields will remain low, reports Bloomberg. The current stock advance is viewed as a 'bear market rally', with investors flocking to the safest assets.

The predictions are similar to other critics like columnist Paul Krugman and DailyFinance's Peter Cohan who paints a similar picture of a political culture simply unwilling to implement nationalization in one fell swoop. The government's current actions are seen to be merely a step in preparing the American public for the massive policy changes and costs that will occur when a major bank is seized. The government is conducting stress tests of banks to determine how much more capital each will need. These stress tests are predicted to reveal that some banks will have their good and bad assets separated before being sold to the private sector. Roubini however, didn't name which companies he thought would need to be rescued.

There are a few analysts, such as Templeton Asset Management's Mark Mobius and Traxis Partners' Barton Biggs, who argue that U.S. stocks are likely to continue their young rally. The analysts, believe that the fiscal stimulus and quantitative easing will add dollars and this commercial activity will counteract the nation's worst recession in more than two decades.

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