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Merrill Lynch, Wachovia and other financial companies are at risk of failure as the cost of raising capital soars at a time when the banks need to pay settlements over auction rate securities, David Kotok, chairman & chief investment officer from Cumberland Advisors, told CNBC Monday.
"I think the financial problem is half way through the cycle … there's another shoe to drop ahead of us and it could be more severe," Kotok told "Worldwide Exchange." (Watch the video at the left to hear Kotok's views on where oil and the dollar are heading.)
The cash companies need to shore up bad investments, "is up to about $50 billion and will probably top $100 billion before it's over," he added.
"Those firms -- Merrill,
[MER 24.74 -1.55 (-5.9%) ] Wachovia
[WB 14.96 -0.61 (-3.92%) ] and others -- are going to have to raise that cash," he said. "They are either going to have to get it from the Federal Reserve, through some direct or indirect means, which means more leverage, more Fed balance sheet, more regularly oversight or they're going to have to get it in the capital markets."