If hundreds of banks are going to fail, we need to be asking why. Who is responsible?
NEW YORK, Aug 3 (Reuters) – The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron’s in Sunday’s edition.
Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said — at least $1 trillion and more likely $2 trillion.
The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron’s reported.
The entity responsible for oversight of banks (a self-appointed entity) is the federal government.
U.S. consumers, meanwhile, are “shopped out” and saving less, while the Federal Reserve’s performance in handling the crisis has been poor, Roubini said, because it failed to see that the problem extended beyond subprime mortgage debt.
Now, Roubini told Barron’s, the government is overregulating, bailing out troubled participants and intervening in every market.
“The regulators should investigate themselves for bailing out Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), the creditors of Bear Stearns and the financial system with new lending facilities. They have swapped U.S. Treasury bonds for toxic securities,” he told Barron’s. “It is privatizing the gains and profits, and socializing the losses as usual. This is socialism for Wall Street and the rich.”
We should be demanding that a bailout be off the table as an option. We should be demanding jail sentences for those officials responsible for this fiasco. A bailout will mean that the half trillion dollars in new debt the government is currently projecting will grow to an even larger number. It boggles the mind. Do we really want to saddle future generations with this sort of a ball and chain around their economic ankles?
The age of easy credit may be drawing to a close. The age of bailouts needs to die with it.