Former Top IMF Economist Predicts Large U.S. Bank Failures
When it comes to the credit and banking crisis here in the United States— you ain’t seen nothing yet. That’s according to a former chief economist of the International Monetary Fund. Bloomberg’s Shamim Adam wrote yesterday:
Credit market turmoil has driven the U.S. into a recession and may topple some of the nation’s biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.
“The worst is yet to come in the U.S.,” Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. “The financial sector needs to shrink; I don’t think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.”…
“Like any shrinking industries, we are going to see the exit of some major players,” Rogoff told Bloomberg, declining to name the banks he expects to fail. “We’re really going to see a consolidation even among the major investment banks.”
The Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University pointed out that bank failures might not be all that bad of a thing. Adam wrote:
“The only way to put discipline into the system is to allow some companies to go bust,” Rogoff said. “You can’t just have an industry where they make giant profits or they get bailed out.”
Rogoff noted that the credit crunch and banking crisis is taking place during an economic recession and a major housing slump. From the Bloomberg piece:
The world’s largest economy is already in a recession, and the housing market will continue to deteriorate, Rogoff said. The U.S. slowdown will last into the second half of next year, he said, predicting a faster recovery in Europe and Asia.
Source:
“Large U.S. Banks May Fail Amid Recession, Rogoff Says (Update5)”
Shamim Adam
Bloomberg, August 19, 2008
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