Dr. Doom: Nouriel Roubini

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Jul 16, 2008
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This guy's been getting quite a buzz for having 'predicted' the financial crisis two years ago, and some of the stuff he's saying now is pretty interesting. Thought others would be interested as well.

http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html?pagewanted=1&_r=1

New York Times said:
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer.

But Roubini was soon vindicated. In the year that followed, subprime lenders began entering bankruptcy, hedge funds began going under and the stock market plunged. [...]

In February, when the conventional wisdom held that the venerable investment firms of Wall Street would weather the crisis, Roubini warned that one or more of them would go “belly up” — and six weeks later, Bear Stearns collapsed. Following the Fed’s further extraordinary actions in the spring — including making lines of credit available to selected investment banks and brokerage houses — many economists made note of the ensuing economic rally and proclaimed the credit crisis over and a recession averted. Roubini, who dismissed the rally as nothing more than a “delusional complacency” encouraged by a “bunch of self-serving spinmasters,” stuck to his script of “nightmare” events. [...] As a result, Roubini, a respected but formerly obscure academic, has become a major figure in the public debate about the economy: the seer who saw it coming. He has been summoned to speak before Congress, the Council on Foreign Relations and the World Economic Forum at Davos. He is now a sought-after adviser, spending much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia. [...]

Roubini was unnerved by what he saw in the U.S. economy, in particular its 2004 current-account deficit of $600 billion. He began writing extensively about the dangers of that deficit and then branched out, researching the various effects of the credit boom — including the biggest housing bubble in the nation’s history — that began after the Federal Reserve cut rates to close to zero in 2003. Roubini became convinced that the housing bubble was going to pop. [...]

For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation sponsored by Representative Barney Frank and Senator Christopher Dodd — but something between a trillion and a trillion and a half dollars. But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.” [...]

The United States, Roubini went on, will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. “Once you run current-account deficits, you depend on the kindness of strangers,” he said, pausing to let out a resigned sigh. “This might be the beginning of the end of the American empire.”

And here's the latest Charlie Rose interview. It's only about 9 minutes long and worth checking out:

A conversation with Nouriel Roubini - Charlie Rose
 
Fascinating.

Made perfect sense to me.

He outlineed: that the mortgage crises was only part of the real problem, that truly insolvent banks need to go out of business; that the FED screwed up; that the free for all lending wasn't just to homebuyers, but to credit cards, corporate debts., prime, subprime credit alike.

However, one minor point.

No economic stimulus package which does not put millions of people to work in jobs that pay a living wage is going to have a long term effect, either.

How on earth do most economists not get this?

Americans need to MAKE STUFF, not just consume stuff.

The people need industries to work in that pay decent wages. Service industries generally don't pay decent wages.

We shipped so many of those physical universe industries off shore we can't truly employ enough people at gainful employment.

We can't all sell each other handburgers and real estate, folks. 30% of the economy that is doing well, or even very well, cannot a healthy economy make.

This globalized economy is a tragic mistake for most Americans. The only truly thing globaized from it is misery for working classes worldwide. Well. that and a propenisty to have, not just localized depressions, but world wide depressions.

If most American workers are economically disadvantaged, how on earth can we expect our economy to ever thrive?

American economy will be one economic bubble after the other until we put the majority of people to work at living wages.

The top tier income earners have money to invest, (because they make so much, they cannot consume) but so much investment money chasing so few profits (because the workers don't make enough to buy enough) that their investments create economic bubbles.

This is about the tenth recession America has had just in my lifetime.

And this one is by far worse than the one in the lates 70's early 80's, folks. I know some of you disagree, but I was there. It wasn't this bad, except int he Mid West.

The real unemployment is about 11% right now, and rising.

The solution is out there for the USA. Stop the insane trade wars we have been doing against our own American industries.

I'm a broken record on this issue, I know, and I apologise for it, too.

But it really is the root problem facing our economy. Not credit, that's a symptom. Salaries are too damned low..because of FREE TRADE.

Until we all know that, and understand it, and agree to do something about it, it will never get better.

The 1950's republicans got it, folks. They were against most of the trade concesssions we gave away post 1934 util the laste 1960.

That's because they were nationalists.

Today's neoc0ns are internationalists. They want to "starve the beast".

And the beast isn't just the American governement...it's the AMERICAN PEOPLE.
 
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Getting buzz for predicting it 2 years ago? 2 years ago it was EASY to predict. What about the Austrian Economists who were predicting it in the 90's?

And Editec, it looks like Obama wants to spend money on new infrastructure projects in the country, which will definitely add more jobs.

The problem with it, is that it could be lead to another bubble.
 

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