"Sovereign" bank failure possible

Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a government-backed bank "may crack" as officials try to bail out their financial systems.

"The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign," Roubini wrote on his website today. "At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued."

Roubini didn't identify any sovereign bank that might run into difficulty.

[Hint: The latest data on Q4 2008 GDP growth (at an annual rate) around the world are even worse than the first estimate for the US (-3.8%): -6.0% for the Eurozone; -8% for Germany; -12% for Japan; -16% for Singapore; -20% for Korea.]

"The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating," Roubini said.

The protracted downturn Roubini warned of can only be prevented by "a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies)," he said. -- source

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Today, the U.S. national debt is equal to about 75 percent of our GDP. The national debt-to-GDP ratio — a standard way economists measure the burden of national debts — is now higher than what it was in 1943, after the New Deal programs of the 1930s and the beginning of World War II. The current fiscal year's deficit plus the "stimulus" plan increases the ratio to 84 percent. The cost of Treasury Secretary Tim Geithner's recently announced Financial Stability Plan plus our deficits will put us over 100 percent in as little as a year. -- source

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Do you trust your bank and the FDIC?

Find out if your bank has "opted-out" of the FDIC's Transaction Account Guarantee Program

The TAG program guarantees full deposit coverage of non interest-bearing transaction accounts, regardless of the dollar amount and is in addition to, and separate from, the standard FDIC insurance that was temporarily increased to $250,000 per depositor. Both FDIC limits will be in effect through December 31, 2009.

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