Subprime Everything

By Mary Kane 08/19/2008 09:30AM

At least one large U.S. bank is likely to fail as the credit crisis deepens, a Harvard economics professor says, offering the latest gloomy assessment of the country's financial prospects. Kenneth Rogoff, who also is the former chief economist at the International Monetary Fund, told a conference in Singapore that a recession will be more severe than predicted, Bloomberg says. From Rogoff:

``The worst is yet to come in the U.S. The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''

If that's not depressing enough, there's the outlook from Dr. Doom, or Nouriel Roubini, a New York University economist and widely-followed blogger. Roubini is famous in economic circles for having predicted the current meltdown, including the troubles at Fannie Mae and Freddie Mac, way back in 2006. He's not exactly any more optimistic now, according to a profile in the New York Times magazine:

“Reckless people have deluded themselves that this was a subprime crisis. But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

Interestingly, Roubini refers to himself as a realist, rather than a pessimist. Try digesting that. And then enjoy your day!