Investing: That Sinking Feeling
Time International
Thursday, Jul. 17, 2008 By Nouriel Roubini and Rachel Ziemba
Early last winter, when the west was suffering the first casualties of the credit crisis, sovereign wealth funds (SWFs) rode to the rescue, providing over $40 billion in capital to some of the largest of the faltering U.S. and European banks. The U.S. government — reluctant to bail out banks directly — welcomed this infusion, even though SWFs are investment arms of foreign governments and American politicians are often suspicious of outsiders acquiring stakes in key domestic assets. So instead of a bailout of financial institutions by American taxpayers, we saw a foreign-funded bailout.
As mortgage losses continued to mount and the credit-crisis snowball rolled on, private equity, with some SWF support, took on the role of recapitalizing regional banks. Yet there's still no end to the crisis in sight. On July 11, U.S. regulators shut down IndyMac Bank, the second-largest largest financial institution to close in U.S. history. If current estimates are right and more losses are coming — Goldman Sachs says U.S. and European banks may need another $200 billion — where's the money going to come from to keep the financial system functioning?

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