Bank Takeovers Deepened Financial Market Crisis
Bank takeovers worsened the financial crisis by making firms that were already too big even bigger, said Nouriel Roubini, the New York University professor who predicted the financial crisis.
“The institutions are insolvent,” Roubini said in a Bloomberg Radio interview. “You have to take them over and you have to split them up into three or four national banks, rather than having a humongous monster that is too big to fail.”
JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. in March 2008, with help from the Federal Reserve, while Bank of America Corp. purchased Merrill Lynch & Co. Wells Fargo & Co. took control of Wachovia Corp. and PNC Financial Services Group Inc. got National City Corp.
Banks around the world have reported $1.29 trillion in credit losses tied to the housing market collapse since 2007. The deficits, which spurred the first simultaneous recessions in the U.S., Europe and Japan since World War II, pushed the American government to pledge $12.8 trillion to stabilize the banking system and revive economic growth. That figure amounts to $42,105 for every man, woman and child in the country.
The Standard & Poor’s 500 Index, which tumbled 38 percent in 2008, has rallied 22 percent after sinking to a 12-year low on March 9. Roubini said in a Bloomberg interview that day that the S&P 500 is likely to drop to 600 or lower this year as the global recession intensifies.