Unless confidence in the US banking system is restored and banks start lending again, the United States' latest stimulus package may not have a significant effect on the real economy, writes Professor Fariborz Moshirian of the Australian School of Business at UNSW.
According to recent estimates by the International Monetary Fund (IMF), the total potential losses from loans and other credit securities originating from the US is $2.2 trillion, up from $1.4 trillion in October 2008.
The IMF's study of 122 past banking crises around the world shows that unless banks' balance sheets are cleaned up economic recovery will be slow and painful.
Writing in the Australian Financial Review, Professor Moshirian said any private and public partnership investment in the US banking sector, as proposed by US Treasury Secretary Timothy Geithner, would be ineffective unless confidence is restored first.
Read the full opinion piece on the Australian School of Business website.
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