Ultra-pessimist Roubini outlined his 12-step scenario for U.S. economic and financial meltdown in July 2006. In the first step to financial disaster, he cites the housing recession -- the worst in U.S. history.
According to his scenario, the U.S. economy will go from bad to worse following these steps: the spread of the subprime mortgage crisis to near prime and prime mortgages (step two), credit problems lead to a sharp increase in defaults on consumer debt such as credit-cards (step three), monoline insurers start to fail, casting doubt on their bond ratings (step four), and the commercial real estate loan market begins to meltdown (step five).
In the sixth step, a large regional or even a national bank fails, prompting the specter of bank runs and forcing the Federal Reserve to commit to bailouts. In the seventh step, banks take a hit from reckless leveraged buyouts during the credit bubble era.
In the eighth step, a huge wave of corporate defaults takes place and fear of counterparty risk looms large, deepening the credit freeze. In the ninth step, the "shadow banking system" collapses.
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