Professor: Hundreds of U.S. banks will fail in the next 18 months

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Professor Nouriel Roubini told Barron’s that the U.S. is in a long recession will last for at least another 18 months. This recession will kill hundreds of banks, mostly medium-sized regional banks.

According to Roubini, big banks will also have difficulty, such as Wachovia bank, but they have enough resources to back up those losses according to Roubini.

The government and U.S. taxpayers will be the ones forced to pay the heavy price for the banks’ failures. It will cost an estimated $1- to $2-trillion to bail out failing banks.

The banks will become insolvent because of the huge mortgage failures and the hundreds of millions of dollars outstanding in home-equity loans that will become worth nothing, Roubini said.

U.S. consumers are no longer able to save more money and the Federal Reserve performance in handling the mortgage crisis has been poor.

Roubini told Barron's:

"The regulators should investigate themselves for bailing out Fannie Mae and Freddie Mac, the creditors of Bear Stearns and the financial system with new lending facilities. They have swapped U.S. Treasury bonds for toxic securities."

Roubini said the government is not bailing the banks out, but rather the shareholders, bondholders and management who made the mistakes that led to this financial mess.

The banks that will close in the near future are the community banks that finance homes, stores, downtown areas and commercial real estate, which will lead to further decline in the U.S. economy.