Tuesday, January 20, 2009

Roubini: U.S. Credit Losses may reach $3.6 Trillion

by Calculated Risk on 1/20/2009 10:00:00 AM

From Bloomberg: Roubini Predicts U.S. Losses May Reach $3.6 Trillion

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
Professor Roubini has been steadily increasing his estimate of total U.S. credit losses, but I think this estimate might be too high.

I think the U.S. residential credit losses will be in the $1 to $1.5 trillion range and additional credit losses from corporate loans and bonds, commercial real estate, credit cards, and other consumer loans will probably add close to another $1 trillion in losses. That is still well short of Roubini's $3.6 trillion estimate - although give Roubini credit - he has definitely been right so far!