(Bloomberg News) Nouriel Roubini, the professor credited with predicting the 2008 economic crisis, said mergers during the recession raise the risk that the U.S. government will have to bail out even larger financial companies.
"The 'too big to fail' problem has become an even too bigger to fail" problem, Roubini said yesterday at the Bloomberg Dealmakers Summit in New York. "That is what happens when you do mergers that don't make any sense."
The federal government rescued institutions whose potential collapse could have disrupted the financial system in 2008, including mortgage lender Fannie Mae and insurer American International Group Inc. The U.S. allowed investment bank Lehman Brothers Holdings Inc. to go bankrupt that September, deepening the financial crisis.
JPMorgan Chase & Co. acquired the brokerage Bear Stearns Cos. and assets of Washington Mutual Inc. in 2008 after the two companies suffered market routs and regulators stepped in. Bank of America Corp. bought brokerage Merrill Lynch & Co. and mortgage lender Countrywide Financial Corp.
Populist ire with banks and brokerages, sparked by the recession, may lead to far-reaching changes on Wall Street, said Arthur Levitt, who served under former President Bill Clinton as chairman of the U.S. Securities and Exchange Commission from 1993 through early 2001.
"The anger is palpable," Levitt said at the Bloomberg conference. "To succeed in this environment, firms are going to have to change, and are in the process of change."
Goldman Sachs
Levitt cited Goldman Sachs Group Inc., the New York-based investment bank that hired him last year as an advisor. In May, Goldman announced the formation of a committee that would review the firm's business standards and make recommendations to its board.
"Every aspect of the firm is being examined and everything is open to change or modification," Levitt said at today's conference. "This is a six-month, round-the-clock study that will result in significant changes in every aspect of the way they do business."
Roubini, an economist who teaches at New York University's Stern School of Business, also runs a consulting firm that provides research and analysis on global economic issues. Roubini, 52, previously served as the senior economist for international affairs at the White House Council of Economic Advisers under former President Bill Clinton.
Levitt, 79, is also a senior advisor to Carlyle Group, the Washington-based private-equity firm, and a board member of Bloomberg LP, the parent company of Bloomberg News.