Nouriel Roubini's Nightmare Scenario
harryh...@yahoo.com
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Hold on to your hats
By Evan Cooper
February 27, 2008
As a rule, Wall Street's rosy prognosticators see any glass as three-
quarters full, while journalists see it as one-quarter empty. Let me
introduce you to Nouriel Roubini -- he sees the glass as bone dry and
about to shatter.
A professor of economics at the Stern School of Business at New York
University and the founder of Roubini Global Economics LLC, an
independent research service in New York that publishes the online RGE
Monitor (www.rgemonitor.com), Mr. Roubini is the Ursa Major of
economic bears. He believes the United States is headed for a whopper
of a financial collapse, leading to a deep recession.
Since economic reality often turns out to be a middle ground between
the utopian highlands and the chasms of ruin, you might want to put
Mr. Roubini into the "Why listen to that nut?" category.
But since he predicted our current economic problems as early as July
2006 -- and because many institutional investors pay for his insights --
perhaps his opinions are worth noting.
Mr. Roubini offers a 12-step scenario for what he sees as "a rising
probability of a catastrophic financial and economic outcome."
He starts with the assumption that a recession began in December and
that it will be worse than recent recessions because housing prices
are likely to fall 20% to 30% and because the ongoing credit bust will
lead to a severe credit crunch, hurting over-indebted consumers.
"So let us suppose that the recession of 2008 will last at least four
quarters and, possibly, up to six quarters," he recently wrote. "What
will be the consequences of it?"
Here comes the gore, according to Mr. Roubini: The recession will lead
to more credit card and consumer debt defaults. Next, the credit-
rating insurers will lose their AAA ratings, which will lead to
further, massive write-offs of asset-backed securities portfolios.
This, in turn, will lead to losses at the banks and money market funds
that hold ABS paper. Add a drop in the commercial real estate business
and he predicts that at least one major commercial bank is likely to
fail.
Next, some highly leveraged loans will fail, further limiting banks'
lending ability and leading to bankruptcy among some overleveraged
companies. The nation's non-bank financial system will be stressed,
leading some mutual funds, hedge funds and investment banks, among
others, to go belly up.
Once investors realize that this is no ordinary recession, the gloom
will infect stock prices. Credit will contract further and there will
be fire sales of assets.
"In this meltdown scenario, U.S. and global financial markets will
experience their most severe crisis in the last quarter of a century,"
Mr. Roubini wrote.
Anything we can do about this, Mr. Roubini?
"One should be pessimistic about the ability of policy and financial
authorities to manage and contain a crisis of this magnitude; thus,
one should be prepared for the worst -- a systemic financial crisis."
Gulp.
Evan Cooper is the senior managing editor and online editorial
director of InvestmentNews.
Copyright (c) 2008 Crain Communications Inc.
Mani Deli
The use of solar energy has not been opened up because the oil
industry does not own the sun.
The corporate lobby in Washington is basically designed to stifle all
legislative activity on behalf of consumers.
I don't think meals have any business being deductible. I'm for
separation of calories and corporations.
The only difference between the Republican and Democratic parties is
the velocities with which their knees hit the floor when corporations
knock on their door. That's the only difference.
Like sex in Victorian England, the reality of Big Business today is
our big dirty secret.
The liberal intelligentsia has allowed its party to become a captive
of corporate interests.
A society that has more justice is a society that needs less charity.
Blash
Ralph Nader quotes begin to appear....
Pure coincidence???
Mani Deli at not...@inter.com wrote on 2/29/08 5:53 PM: