Roubini: FDIC Will Be Drained to Zero

Hi Everyone

I had a very busy day so sorry for the delay. I am going to make it quick tonight. Roubini is out today with this frightening prediction. There is an audio version of this interview on the link:

" In an interview with RTT News, Nouriel Roubini, Professor of Economics and International Business at NYU's Stern School of Business and Chairman of RGE Monitor stresses that we are in the middle of a "severe recession that is deepening" and will cause "at least a couple hundred small banks," to go "belly up," a third of regional banks to be in "severe trouble" and "at least a couple" major national banks to become "insolvent."

Roubini says there is "no doubt" that the FDIC's reserve will be "drained 100-percent" and stresses that there is "nothing that can be done" to prevent this financial crisis and recession.In addition, Roubini predicts that Lehman Brothers "won't be able to survive" as an independent broker dealer.

To listen to the complete interview, visit:http://www.rttnews.com/Audio2/2008/July/18/INTV-ROUBINI-BanksFail-07.18.08.mp3"

Quick Take:

Roubini hasn't missed since this credit crunch began. He was a year ahead of everyone in terms of predicting this meltdown. I take him very seriously. The last I saw, the FDIC had about $20 billion in the bank. Any type of slight bank run will wipe this out in a heartbeat.

Now, the government will of course backstop it to a point. Remember, if we print our way out of this we end up in the hyperinflationary scenario. I don't see it happening. The government is not that stupid. As a result, there will be a point at which the bailouts stop.

This is when you will see debt bubble burst. The June selloff was a prelude of things to come. The real fireworks start later this summer or early fall IMO.

Deflation and a shrinking money supply is the only sensible way out of this mess. If a bank run hits, I am starting to consider turning my mattress into my bank.

Here is another warning from a very influental economist

This is from world renowned economist Martin D. Weiss Ph.D. Here is the link. I will post this whole piece because I think its excellent:

"Dead cat bounce! Beware of bear market trap ...
by Martin D. Weiss, Ph.D. 07-18-08

Bernanke and Paulson's smoke, mirrors and hot air are temporarily buoying markets, luring gullible investors back into stocks! Meanwhile,

Merrill Lynch just disclosed it was creamed by $40 billion in investment write-downs in the second quarter — $69 billion so far this year.

Citigroup has revealed a $2.5 billion loss — and a decline in total assets of a staggering $99 billion so far this year. Plus,

The U.S. Dollar Index is now within one penny of a new all-time low and a new plunge.
I think this could be one of the most dangerous times imaginable for you — and for anyone else who owns vulnerable stocks or equity funds.

With the mortgage crisis and credit catastrophe still deepening ... with the economy still teetering on the edge of a cliff ... with the U.S. dollar hovering near its all-time lows and poised for even greater losses ahead ...

Yes, Washington's efforts to rescue Fannie, Freddie and other lenders have lured some investors back into stocks. But mark my words: It will be a move those investors could regret for the rest of their investing lives.

Every indicator we examine is virtually screaming that this is nothing more than a bear market trap — a dead cat bounce — and that the worst of this crisis is still ahead of us.
My recommendation: If you haven't done so already, use these rallies as your chance — perhaps one of your last chances — to do three things:

First, reduce your risk. That means taking advantage of the bounce in financial stocks to clear out. And that also means shedding stocks in most other sectors as well.

Second, build your cash, stashing most of it in U.S. Treasury bills or a Treasury-only money fund, with an allocation to the world's strongest foreign currencies.

Third, with funds you can afford to risk, turn this crisis into some of the major profit opportunities we cover in our newsletters."

Final Take:

This bounce is providing everyone stuck in financials a nice opportunity to exit stage left. you might not get another chance to get out. The Fed has painted a pretty picture which is temporarily propping up stocks. This bounce isn't going to last very long.

I will take a smart economist's opinion over a pigmen's opinion any day of the week.

Please protect yourself!