Financial and Corporate System is in Cardiac Arrest (Nouriel Roubini)

  The Risk of the Mother of All Bank Runs

  (RGE Monitor) -- It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly but at this point we have reached the final 12th step of my February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred).

  Yesterday, Thursday, a senior market practitioner in a major financial institution wrote to me the following:

  Situation Report: So far as I can tell by working the telephones this morning:

  --LIBOR bid only, no offer.

  -- Commercial paper market shut down, little trading and no issuance.

  -- Corporations have no access to long or short term credit markets -- hence they face massive rollover problems.

  -- Brokers are increasingly not dealing with each other.

  -- Even the inter-bank market is ceasing up.

  This cannot continue for more than a few days. This is the economic equivalent to cardiac arrest. Then we debated what is necessary to restart the system.I believe that the government will do another Hail Mary pass, with massive guarantees to the short-term commercial credit system and wide open short-term lending by the Fed (two or three times expansion of the Fed balance sheet). If done on a sufficient scale this action will probably work for a while. But none of these financial measures affects the accelerating recession -- which will in turn place more pressure on the financial sector.

more

READ MORE: RGE Monitor