The sky remains firmly in place, blue and far above our heads

Wednesday, September 17, 2008

The U.S. financial crisis that has ripped through Wall Street is on central stage. The uncertainty and angst surrounding the Lehman bankruptcy and the AIG takeover has sparked much speculation that the worst-case scenario is a foregone conclusion.

Nouriel Roubini, my favorits dismal economist, is calling this “the worst financial crisis since the great depression,” and Calculated risk paints a more euphemistic picture of the same idea: “But unlike observers that believe this only marks the end of the beginning, I believe there is a chance that these events mark the beginning of the end of the crisis.”. The Financial Ninja has a perfect illustration of how Wall Street feels right now – shocked and scared.

Markets will remain choppy until the banking system has cleared out its baggage. Since further losses are expected related to the ailing residential and commercial real estate markets ($515 billion to date worldwide), it is likely that more banks will fail. However, 11 federally insured banks have failed in the U.S. since January, and the magnitude of bank failures going forward depends on the banks’ ability to raise capital, the liquidity in the market, Fed and U.S. Treasury actions, and the resiliency of the U.S. economy, all of which remain to be seen. There is a lot of uncertainty regarding the ability of the financial system to survive the transition away from securitized products, but a collapse of the U.S. banking system is not a foregone conclusion.

I think that the IMF says it best: “We continue to anticipate a gradual global growth recovery in 2009, although the weekend's developments represent a potential added risk to the outlook. We at the Fund are in contact with our membership to help them assess the latest developments in international capital markets and manage the implications for their economies.”

And away from Wall Street we go:

Have a great day! Rebecca Wilder


Janie September 17, 2008 at 9:49 AM  

Lovely!! I'll get in my gas guzzler and go look for the lion and tiger on impassable streets. Makes for a much better day than what is planned!

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