Former International Monetary Fund’s chief economist Kenneth Rogoff predicts that a large U.S. bank will fall in the coming months, according to a Reuters report.
“The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say ‘the worst is to come’,” he told a financial conference.
“We’re not just going to see mid-sized banks go under in the next few months, we’re going to see a whopper, we’re going to see a big one, one of the big investment banks or big banks,” said Rogoff, who is an economics professor at Harvard University, who was the IMF’s chief economist from 2001 to 2004.
Rogoff predicts that despite what U.S. Treasury Secretary Henry Paulson said, both Fannie Mae and Freddie Mae will not exist in their present forms in the next few years. His comments follow the dumping of Fannie and Freddie shares on August 19.
Sovereign wealth funds were viewed as a possible solution but Rogoff does not agree. “There was this view early on in the crisis that sovereign wealth funds could save everybody. Investment banks did something stupid, they lost money in the sub-prime, they’re great buys, sovereign wealth funds come in and make a lot of money by buying them, Rogoff told Reuters.
Rogoff also believes that the government was wrong to cut rates as much as they have. He says that cutting interest rates is going to lead to immense inflation going forward.