Roubini Says A 'Sovereign' Bank Will Soon Crack, Crashing Credibility of Governments

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ByLoSellHi

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXtNRPHr7HY0&refer=home

Roubini Says a ‘Sovereign Bank May Crack’ as Crisis Worsens

By John Fraher

Feb. 19 (Bloomberg) -- Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a “sovereign bank may crack” as governments try to bail out their financial systems.

“The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,” said Roubini on his blog today. “At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.”

Roubini didn’t identify any individual “sovereign bank” that might run into difficulty.

To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.net
Last Updated: February 19, 2009 11:39 EST
 
what does cracked mean?

that their liabilities are greater than their assets, or that people finally figure it out?
 
Here's a correction. He's not talking about banks, but about a government failing, from an economic viewpoint.

~~~~~~~~~~~~~~~~~~~~~~~~


Roubini Says a ‘Sovereign’ May ‘Crack’ Amid Crisis (Correct)

By John Fraher and Courtney Schlisserman

(Corrects to remove “bank” after “sovereign” reference from headline and first and second paragraphs reflecting Roubini revision of comments on his Web site.)

Feb. 19 (Bloomberg) -- Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a “sovereign may crack” as officials try to bail out their financial systems.

“The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,” Roubini wrote on his Web site today. “At some point a sovereign” may “crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.”

Roubini didn’t identify any government that might run into difficulty. He apologized for “confusion” stemming from his earlier reference to a “sovereign bank,” according to his Web site.

He also said he sees a 30 percent chance of an “L-shaped near-depression” without “appropriate and aggressive policy action” by the U.S. and other major economies.

The latest data indicate fourth-quarter gross domestic product in key economies including the U.S., the euro zone and Japan may be worse than initially reported.

“The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating,” Roubini said.

The protracted downturn Roubini warned of can only be prevented by “a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies).”

To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.netCourtney Schlisserman in Washington at cschlisserma@bloomberg.net
 
Quote from chanelops:

Here's a correction. He's not talking about banks, but about a government failing, from an economic viewpoint.

~~~~~~~~~~~~~~~~~~~~~~~~


Roubini Says a ‘Sovereign’ May ‘Crack’ Amid Crisis (Correct)

By John Fraher and Courtney Schlisserman

(Corrects to remove “bank” after “sovereign” reference from headline and first and second paragraphs reflecting Roubini revision of comments on his Web site.)

Feb. 19 (Bloomberg) -- Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a “sovereign may crack” as officials try to bail out their financial systems.

“The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,” Roubini wrote on his Web site today. “At some point a sovereign” may “crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.”

Roubini didn’t identify any government that might run into difficulty. He apologized for “confusion” stemming from his earlier reference to a “sovereign bank,” according to his Web site.

He also said he sees a 30 percent chance of an “L-shaped near-depression” without “appropriate and aggressive policy action” by the U.S. and other major economies.

The latest data indicate fourth-quarter gross domestic product in key economies including the U.S., the euro zone and Japan may be worse than initially reported.

“The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating,” Roubini said.

The protracted downturn Roubini warned of can only be prevented by “a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies).”

To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.netCourtney Schlisserman in Washington at cschlisserma@bloomberg.net
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