Central banks boost dollar liquidity

David Wessel and Charles Forelle discuss how five central banks are moving to inject dollars into the European banking system, as fears of a sovereign debt crisis mount.

He predicts a new, Lehman-like financial crisis in the next six to 12 months, only this time involving the debt of governments and European banks.

He thinks it could drive stocks much lower, to levels at which they traded, well, just after the collapse of Lehman and AIG in fall 2008.

“When it happens, it’s going to happen fast, and it’s going to be ugly and very deep,” he told me in a telephone interview, adding that he expects it to be “worse than the last crisis. Last time around, the governments had some room to bail people out. They don’t have that capacity [now].”

Stephenson isn’t well-known in the United States, but I find him smart and credible. He’s been named one of the 50 best money managers in Canada and is steeped in Toronto’s conservative Bay Street culture.

Other famous investors agree with him. Investing giant George Soros, for one, said: “This crisis has the potential to be a lot worse than Lehman Brothers.”