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Profile: RGE Monitor

RGE Monitor was a participant or observer in the following events:

New York University economist Nouriel “Dr. Doom” Roubini and Western Europe Finance and Banking analyst Elisa Parisi-Capone of RGE Monitor release new estimates for expected loan losses and writedowns on US originated securitizations:
bullet Loan losses on a total of $12.37 trillion unsecuritized loans are expected to reach $1.6 trillion. Of these, US banks and brokers are expected to incur $1.1 trillion.
bullet Mark-to-market writedowns based on derivatives prices and cash bond indices on a further $10.84 trillion in securities reached $1.92 trillion. According to flow-of-funds data, about 40% of these securities (and losses) are foreign-held. US banks and broker dealers are assumed to incur a share of 30-35%, or $600-700 billion in securities writedowns.
bullet US-originated assets’ total loan losses and securities writedowns are expected to reach about $3.6 trillion. The US banking sector is exposed to half of this figure, or about $1.8 trillion (i.e. $1.1 trillion loan losses + $700bn writedowns).
bullet As of the third quarter of 2008, Federal Deposit Insurance Corporation-insured banks’ capitalization is $1.3 trillion; as of the same period, investment banks had $110bn in equity capital. Roubini and Parisi-Capone say that past recapitalization through the first release of the TARP funds for $230bn, and private capital of $200bn leaves the US banking system very nearly insolvent, should loss estimates materialize.
bullet In order to restore safe lending, additional private and/or public capital of approximately $1 to 1.4 trillion is needed, thus calling for a comprehensive solution along the lines of a “bad bank” proposed by policymakers, or an outright restructuring through a new resolution trust corporation (RTC).
bullet In September 2008, Roubini proposed a solution for the banking crisis that also addresses the root causes of the financial turmoil in the housing and the household sectors. The HOME (Home Owners’ Mortgage Enterprise) program combines an RTC to deal with toxic assets, a homeowners loan corporation to reduce homeowners’ debt, and a reconstruction finance corporation to recapitalize viable banks.
They concluded that total financial system losses will likely hit $3.6 trillion, half of which, according to Roubini, “will be borne by US firms,” and that the losses will overwhelm the US financial system which, in the third quarter of 2008, had a capitalization of $1.3 trillion in commercial banks and $110 billion in investment banks. [Bloomberg, 1/20/2009; AFP Reporter, 1/22/2009] Since September 7, 2006, Dr. Roubini, an economics professor at New York University, has been known as “Dr. Doom” after telling an audience of economists at the International Monetary Fund that an economic crisis was brewing in the coming months and years. He warned that the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession, and laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he said, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac. [New York Times Magazine, 8/15/2008]

Entity Tags: Nouriel Roubini, Elisa Parisi-Capone, RGE Monitor

Timeline Tags: Global Economic Crises

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