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Bleak Outlook for U.S. Financial Crisis

Published 09/08/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

One year after the credit crisis began, U.S. markets have still not reached bottom in their historic plunge. Nobel Prize winning economist Clive Granger expects worse conditions in the future, as institutions rack up billions more in writedowns and losses, according to Bloomberg.

The Treasury Department’s weekend takeover of Fannie Mae and Freddie Mac is a sign of the times in America today. Banks, securities and finance firms have reported worldwide credit losses of well over $500 billion in the last year with no end in sight.

Granger is alarmed by the lack of information both into and out of the financial sector, as it seems that no one has any clue just how big or bad the crisis truly is. Nuriel Roubini, an economist and New York University, shocked many last month by claiming that the current crisis would claim hundreds if not thousands of banks and that current credit loss could balloon to over $2 trillion.

The failure of Fannie Mae and Freddie Mac is particularly concerning for anyone invested in American finance houses. The two giants, which had backed roughly half of the Untied States $12 trillion in outstanding mortgages and home loans, have seen share-values plummet over the past year, costing the companies and their investors billions (see: Fannie Mae, Freddie Mac). The government bailout was widely anticipated but the costs and potential drawbacks of the move present and immense challenge to the government. Furthermore, employees at the two firms stand to suffer greatly from their companies’ demise.

As more and more U.S. firms spill cash and credit assets in the wake of this continued financial storm, the market bottoming which at first seemed inconceivable now seems like a matter of time. Those who stand to be hurt the most by this catastrophe of globalized economics are the middle-class taxpayers whom have lost their homes, jobs, and savings due to the poor management and fiscal irresponsibility of the market.

Source Bloomberg:

The U.S. financial crisis isn't over a year after it began, and more institutions will probably report losses tied to the collapse of the subprime-mortgage market, Nobel prize-winning economist Clive Granger said.

…

Banks and securities firms worldwide have reported losses of more than $500 billion tied to the subprime market. The U.S. government said yesterday it will take control of Fannie Mae and Freddie Mac. after the biggest surge in mortgage defaults in at least three decades. In March, the U.S. Federal Reserve provided financing for Bear Stearns Cos.'s sale to JPMorgan Chase & Co.

…

New York University economist Nouriel Roubini last month said in an interview with Barron's that hundreds of U.S. banks will fail and predicted almost $2 trillion in credit losses.

Almost all the damage from the subprime crisis has occurred at companies based in Europe and the U.S. For Granger, a professor emeritus at the University of California, San Diego, the global economic outlook over the next two years depends largely on Asia.

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