(NOTE: There are many more NR articles on this blog, going back to 2006, just use the search box at the top of the right-hand sidebar (or click here). Here’s one from January. I have been writing about the coming crisis myself since 2004, when I sold my co-op in DC and started renting, and also started liquidating my other real estate investments. The asset and credit bubbles were obvious to all who had their eyes open and thought for themselves. Sadly, most people do not think for themselves, maybe that’s why we have the term sheeple.)
The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever
The next step of this panic could become the mother of all bank runs…
By Nouriel Roubini
It is obvious that the current financial crisis is becoming more severe in spite of the Treasury rescue plan (or maybe because of it as this plan it totally flawed). The severe strains in financial markets (money markets, credit markets, stock markets, CDS and derivative markets) are becoming more severe rather than less severe in spite of the nuclear option (after the Fannie and Freddie $200 billion bazooka bailout failed to restore confidence) of a $700 billion package: interbank spreads are widening (TED spread, swap spreads, Libo-OIS spread) and are at level never seen before; credit spreads (such as junk bond yield spreads relative to Treasuries are widening to new peaks; short-term Treasury yields are going back to near zero levels as there is flight to safety; CDS spread for financial institutions are rising to extreme levels (Morgan Stanley ones at 1200 last week) as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package (US market are down about 3% this morning at their opening).
Let me explain now in more detail why we are now back to the risk of a total systemic financial meltdown…