Tags: Crisis | Recession | Next | Year

Experts Atkeson and Simon: Crisis, Recession Loom Next Year

Monday, 28 Nov 2011 08:00 AM

Economist Andrew Atkeson and law professor William E. Simon Jr. say another credit crisis and recession loom in 2012.

"There are emerging signs in the stock market that the U.S. economy is about to face financial headwinds that may lead to another credit crisis and recession next year," Atkeson and Simon write in The Wall Street Journal.

"The recent volatility in bank stocks is a signal that U.S. banks, large and small, are not as healthy as many analysts assume."
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“The market for bank stocks is now sending a bright red warning signal that conditions are ripe for another potentially disastrous financial panic.”

Banking is a game of confidence, these experts say, so if the investing public is uncertain about the health of bank balance sheets, that uncertainty can turn into fear, setting the stage for a banking panic.

When uncertainty turns to panic, as it did in 1929-33 and again in 2008-09, the volatility in the daily movements of bank stock prices can shoot up to seven or eight times their normal levels. When this occurs, the damage radiates quickly from the banks to the broader economy.

“Over the past three months, investor uncertainty about the soundness of bank balance sheets, manifested in the daily volatility of stock prices, is back up to levels seen historically only in advance of these two great crises,” Atkeson and Simon say.

The Dallas News reports that shares of banks like Morgan Stanley, Citigroup Inc. and Bank of America Corp. are priced as if financial Armageddon were just around the corner.

Shares of Morgan Stanley started the year at about $30, and now trade around $13, Citigroup has fallen from about $50 a share to below $25, and Bank of America trades almost like a penny stock now, falling from $20 earlier this year to $5.

Meanwhile, Reuters reports that the Organization for Economic Cooperation and Development warned the global economic recovery is running out of steam, leaving the euro zone stuck in a mild recession and the United States at risk of following suit, sharply cutting its forecasts.

The threat of even more devastating downturns looms if the euro zone does not get to grips with its debt crisis and U.S. lawmakers fail to agree a spending-reduction plan, the Organization for Economic Cooperation and Development warned.


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Economist Andrew Atkeson and law professor William E. Simon Jr. say another credit crisis and recession loom in 2012. There are emerging signs in the stock market that the U.S. economy is about to face financial headwinds that may lead to another credit crisis and...
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2011-00-28
Monday, 28 Nov 2011 08:00 AM
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