Monday, August 18, 2008
"You Have Been Warned Here First."
—Nouriel Roubini
0 commentsOr, as The New York Times Magazine called him in this must-read profile, "Dr. Doom."
Nouriel Roubini is the man who, in 2006, was the U.S.'s financial Cassandra. He saw it coming. He tried to tell people. But, as with every other whistleblower, people laughed at him, said he didn't use the proper economic modeling that they all used—and called him "a perpetual pessimist, what economists call a 'permabear.'"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, like with every other whistleblower, damned if he wasn't right!
Ummm, maybe we should have made HIM president, hunh? One has, at the very least, to SEE the problem before one can start to fix it.
Update: The laughing poobahs then, of course (you saw this coming, didn't you?), are now all firmly in his camp, pleading with him to save us all."If you’re sitting around at the European Central Bank,” Kenneth Rogoff, an economist at Harvard who has known Roubini for decades, said, “and you’re asking what’s the worst thing that could happen, the first thing people will say is, ‘Let’s see what Nouriel says.'"
How clever of them. Especially in light of The Times reporting:Recessions are signal events in any modern economy. And yet remarkably, the profession of economics is quite bad at predicting them. A recent study looked at “consensus forecasts” (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the ’90s: in 97 percent of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later.
Ouch.
Gee, you think these storied economists might be the first to turn on Roubini when things get just a tiny bit better? Nahhhhhhh...
Other Roubini quotes:"We are in a recession, and denying it is nonsense."
The United States will suffer through an 18-month recession that will eventually rank as the "worst since the Great Depression."
"This might be the beginning of the end of the American empire."
And the money quote:“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.” (emphasis by GN)
Oops. Ummmmm...
Who do you think we hate more:
Smart people?
Smart people who care?
Or smart people who care, who have the annoying habit of being right?
posted by Gotham 1:06 PM
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