In the corridors of Wall Street and Washington, a worrying consensus is growing: Some of the nation's largest banks are in fact insolvent. If banks reassessed the value of the complex mortgage-backed securities that taint their balance sheets, they would outweigh all assets on hand, writes Steve Lohr of the New York Times. For some experts, that means that only full-scale nationalization and a sell-off of the toxic debts can end the crisis.
"The historical record shows that you have to do it eventually," said one economist, citing 1980s savings and loan crisis and Japan's lost decade. But while the Treasury continues to hold off from such direct intervention, the losses continue to mount. Nouriel Roubini, a business professor who predicted the crisis, says that the fall in market value of banks' assets will hit $3.6 trillion. "The United States banking system is effectively insolvent," he declared.
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