Economist Nouriel Roubini says the taxpayer-funded Wall Street bailout known as TARP falls $1 trillion short.
"Even if you use all of the rest of the TARP money — $350 billion — to recapitalize banks, we're going to need another trillion to bring capital bank to where banks can start lending again," Roubini told CNBC.
Government intervention has reduced the risk of a total systemic financial meltdown, Roubini says.
But since the capital of U.S. banks and brokers is less than $1.5 trillion, the system is still insolvent.
Bank of America is asking Treasury for more money, Citigroup is in trouble, and many regional banks are insolvent, Roubini notes.
“We have now a synchronized global recession,” Roubini says. “The worst we’ve had in decades, and it’s taking its toll on the financial system and on the real economy.”
Sovereign wealth funds could help recapitalize the system, but Roubini believes that the 30 percent to 40 percent losses they have already suffered will make most hesitant to invest more.
U. S. Federal Reserve Chairman Ben Bernanke agrees that the government will probably have to give financial institutions more money in coming months.
"More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets," Bernanke said in a speech at the London School of Economics.
“Our economic system is critically dependent on the free flow of credit.”
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