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" I would argue this is the worst financial crisis the U.S. has had since the Great Depression."

March 30, 2008

argues Professor Nouriel Roubini from the New York University’s Stern School of Business in a recent article in the Investments news which he based on the level of 20 to 30 % fall on house prices, subprime mortgage losses of over $300 billion

“and credit losses will spread outside the subprime arena to credit cards, auto loans and other areas.”

After all let him speak for himself, some juicy quotes are excerpted below:

“With a 20% fall in home prices, about 16 million households are under water. They have negative equity, which means the value of their homes is below the value of their mortgages. With a 30% drop in prices, you have 21 million households that are in negative equity. And since the mortgages are no-recourse loans, essentially they can walk away.”

“I would argue this is the worst financial crisis the U.S. has had since the Great Depression. We haven’t seen this type of real financial turmoil for the last 70 years. Of course, it’s not going to be as bad as the Great Depression. But this isn’t your typical run-of-the-mill recession that in the last two episodes lasted only eight months with a minor contraction in output. This is going to last at least 12 months and more likely 18 months, which is something we haven’t seen in decades.”

Perhaps he might be just overstating it though. More worryingly the financial crisis is spreading to Europe, with the Germans contemplating creating a merger of the major banks to consolidate their losses with the CEO of the Deutsche Bank Josef Ackermann stating that

“I no longer have faith in the ability of the markets to heal themselves”

and Hans Peter-Mueller from Commerzbank pouring more vitriol into the wound by forecasting

“the biggest financial crisis in postwar history” as long as “the markets are allowed to continue operating unchecked.”

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