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02 Oct 2008 07:21 pm
Roubini: "The Mother Of All Bank Runs"?
The biggest bear - and the most prescient - gets even gloomier:
When investors don't trust even venerable institutions like Morgan Stanley and Goldman Sachs, you know that the financial crisis is as severe as ever.
When a nuclear option of a monster $700 billion rescue plan is not
even able to rally stock markets, you know this is a global crisis of
confidence in the financial system.
The next step of this panic could be the mother of all bank runs,
i.e. a run on the trillion dollar-plus of the cross-border short-term
interbank liabilities of the U.S. banking and financial system, as
foreign banks start to worry about the safety of their liquid exposures
to U.S. financial institutions. A silent cross-border bank run has
already started, as foreign banks are worried about the solvency of
U.S. banks and are starting to reduce their exposure. And if this run
accelerates--as it may now--a total meltdown of the U.S. financial
system could occur.
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