Translated material
The worst is certainly yet to come
The crisis in the US continues
Former chief economist of the International Monetary Fund and professor of economics at Harvard University, Kenneth Rogoff, believes that during the crisis one of the largest US banks will go bankrupt, and mortgage companies Fannie Mae and Freddie Mac may cease to exist in their current form. In addition, he criticized the Federal Reserve for excessive rate cuts, which could lead to a sharp rise in inflation.“The United States is still far from overcoming the crisis. I think the financial crisis may now have reached the halfway point. I would even go further: the worst is yet to come,” Reuters quotes Mr. Rogoff, who served as the IMF’s chief economist from 2001 to 2004. “We will see in the next few months the collapse of not only mid-sized banks, but also one of the largest investment banks.” As you know, the mortgage crisis has already led to the bankruptcy of the fifth largest US investment bank, Bear Stearns. However, according to the economist, even such government-funded mortgage giants as Fannie Mae and Freddie Mac, “contrary to the assurances of the country’s Treasury Secretary Henry Paulson, will cease to exist in their current form in the next few years.”
According to Mr. Rogoff, even multibillion-dollar investments by state investment funds from Asia and the Middle East into Western financial institutions will not necessarily bring big profits. The investments did not take into account the situation on the market as a whole, which this sector had to face, the expert emphasizes. “Previously, there was a point of view regarding the crisis that foreign state investment funds could save anyone. The investment banks did something stupid, they lost a lot of money on subprime subprime mortgages and now they look like a great deal, the investment funds come in and buy them up and make a lot of money off of it,” he said. “This view suggests that the financial system has grown too large and must now shrink in size.”
In addition, Mr. Rogoff believes that the Fed was wrong to lower its key interest rate by a total of 3.25 percentage points, to 2% per annum. “A low rate will lead to a serious acceleration of inflation in the United States over the next few years,” Mr. Rogoff said.
The placement of Russia's international reserves in bonds of American mortgage corporations Fannie Mae and Freddie Mac provided income of more than $1 billion in six months, Deputy Prime Minister and Finance Minister Alexei Kudrin said in the State Duma yesterday. “On the bonds in which we invested (international reserves - Ed. ), we not only did not suffer losses, but received income from them of more than $1 billion,” Mr. Kudrin said at a meeting with the Duma faction “Fair” Russia". RIA Novosti