Nouriel Roubini seems to open his mouth only when something bad happens: recently, the so called “Doctor Doom”, due to his dark predictions on the global economy, was announcing on the microblogging site Twitter that several huge institutions could collapse. Among major commercial institutions that Roubini has listed, in the order of listing: Goldman Sachs, Morgan Stanley, Jefferies and Barclays.
The problem with these banks, according to the American economist, is their dependence on short-term financing by institutions hoping to maintain their long-term assets to continue to work, says Business Insider. What led to the collapse of other banks like MF Global, Lehman Brothers, Bear Stearns, AIG and the like, was ultimately the fact that short-term creditors refused to lend money to those companies. Every day, major Wall Street firms borrow tens of billions of dollars in short-term loans which cost is lower. Then use the money to make bets on long-term assets that offer higher yields than the cost of borrowing short-term necessary for keeping up the differential.
In periods when the U.S. economy didn’t not have problems with liquidity, banks could roll their debts from one day to another, paying old loans with money obtained from new ones. But now, if the creditors have the slightest suspicion about their money, they withdraw it immediately. In other posts on Twitter, Roubini argued that JP Morgan and Citigroup are subject to less risk because most of the money comes from insured deposits.