Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management

Expanding on the Precipice | February 5, 2009

A couple of posts down, I responded to my friend, that our economy is on the precipice. If you don’t want to take my word for it, listen to Dr. Nouriel Roubini, one of the few to accurately predict that we would end up in this mess. Here he is today (via Bloomberg):

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers… If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

A lot of people have been shuddering at the size of the stimulus. $800-900b is a whole lot of money, no doubt. But read that paragraph again. $3.5 trillion in losses. More than double the amount of capital presently in the financial system. We’re in big big big trouble here, folks. This also doesn’t address the other problems we’re dealing with: the collapse of the housing market, skyrocketing unemployment, and stagnant manufacturing levels. We’re in a perfect storm, and if we sit idly by, thinking to ourselves that the market will just fix itself, we’re going to be in a world of pain for a long, long time.


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