Tuesday, February 9, 2010

Stiglitz: The Prospects of Sound Recovery of The Banking System are Very Bleak

Bloomberg reports that Nobel laureate Joseph Stiglitz thinks that the prospect of a default by the U.S. or the U.K. is an absurd notion constructed in financial markets. However, the says that banks recovery prospects are very bleak.

Speaking in London, Stiglitz says that both the U.S and the U.K. deserve to keep the Aaa rating and the likelihood of a default is very small, particularly in the U.S. "because all we do is print money to pay it back,” “The notion of a default is so absurd, it’s another reflection of the absurdities in the financial markets.”

Moody’s Investors Service (rating agency) says the grade may face pressure without more action to cut the budget deficit, Stiglitz said the economy requires more stimulus right now.
More stimulus needed

“What we need now is a second round of stimulus,” as well as action to aid over-indebted homeowners; “if we don’t, the heavy level of indebtedness is going to press down on the economy.”

Europeans countries under attack

“Europe should show some solidarity to the countries that are being attacked,” adding that there are some very big bumps in the road ahead for financial markets.

While banks are generating profits, “very little of it comes from lending, a lot of it comes from speculative arbitrage,” “The prospects for a sound recovery of the banking system are very bleak.”

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