Investors and their advisors who may be considering putting money at risk should read what noted investor George Soros and Nouriel Roubini, an economist who predicted a bubble in U.S. housing prices before the market peaked in 2006, have to say in CNBC.com’s “Crisis ‘Worse Than Lehmans,'” Scott Hamilton’s Bloomberg article “Roubini: Slowdown Brings Forward New Crisis,” and InvestmentNews’ “Absent ‘massive stimulus,’ world headed for another Great Depression: Roubini.”
Soros believes that European banks are in danger of failing and setting off a worldwide financial panic like the 2008 panic sparked by the bankruptcy of Lehman Brothers. A European bank failure could spread worldwide because of the interconnectedness of global financial institutions. “The crisis has the potential to be a lot worse than Lehman Brothers,” George Soros was quoted as saying.
“It seems like the banking sector globally is being hurt on multiple fronts. It’s definitely getting worse,” Philip Finch, a UBS bank strategist, was quoted as saying. As in the post-Lehman credit crisis, banks are afraid to lend to each other. “If sentiment continues to deteriorate, ultimately we’ll see a deposit run. I’m extremely worried about that,” Finch added.
The largest American money market funds reportedly cut their buying of European bank debt by nine percent (9%) in July. That may be good for the holders of such funds, but is bad for the long-term future of European banks, as it makes it more difficult for the European banks to loan dollars, according to the article.
The greatest risk is that European governments have refused to recapitalize their banks. “They don’t have the money and they are in the pockets of their bankers,” Daniel Gros, director of the Center for European Policy Studies in Brussels, was quoted as saying.
Nouriel Roubini sees a “perfect storm” hitting in 2013 and a 60% chance of advanced nations falling into a recession, with all risk assets imploding. Roubini says that growth needs to be restored today, not in five years. “In the short term, we need to do massive stimulus, otherwise there’s going to be another Great Depression,” Roubini was quoted as saying. Given that a massive stimulus is politically next to impossible, look out below.
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