America’s financial institutions insist they have enough capital. More and more analysts violently disagree.
For example, NYU professor Nouriel Roubini (who predicted this whole debacle), PIMCO bond guru Bill Gross, and Invesco strategist Diane Garnick all think that banks will have to write off $1 trillion of losses before the credit crash is through (and Diane and Nouriel think this is a floor).
What happens if these analysts are right and bank managers are wrong? The banks will have to take about another $600 billion of writeoffs on top of the $350+ billion they’ve already booked. What happens if that happens? Most of the banks will need to raise more capital, not all of them will be able to do so, and many will go bust. Even the ones that are able to raise capital, meanwhile, will dilute the hell out of current shareholders.
No wonder, then, that the stocks of Fannie Mae (FNM), Freddie Mac (FRE), Wachovia (WB), Wamu (WM), et al, have once again started marching toward zero.
Below, Nouriel Roubini and Diane Garnick discuss their apocalyptic views with me and Aaron Task on Yahoo TechTicker–views that are rapidly becoming consensus.