Archive for March, 2009
There may eventually be light at the end of the tunnel…but not as soon and fast as the bullish consensus makes it: CNBC Squawk Box Interview
I was interviewed this morning on CNBC’s Squawk Box on my views on the economy, on the stock market, on the problems with the banks, the Geithner plan and whether there is light at the end of the tunnel.
As I pointed out in the interview – consistent with my views for the last several months – the rate of economic contraction will slow from the -6% of Q1 to a figure closer to -2% and next year the economic recovery will be so weak – growth below 1% and unemployment rate peaking at 10% – that it will still feel like a recession even if we may be technically out of it. So, compared to the bullish consensus that sees positive growth at 2% by Q3-Q4 of this year and return to potential growth by 2010 my views are still consistently more bearish than the consensus. Still, compared to the sharp contraction in US and global growth in Q1 of this year (about -6%) the rate of economic contraction will slow down towards -2% for the US and other advanced economies by year end. That is only a mild improvement and still a severe U-shaped recession with a very weak and tentative recovery by 2010.
Let me explain next in more detail my economic outlook and its implications for financial markets:
3/26/2009 – Bloomberg – Roubini Says Geithner Plan Won’t Stop Nationalizations (click for video)
Geithner Presents a Viable Plan to Dispose of the Toxic Assets…that Does Not Rule Out that Insolvent Banks Should be Taken Over
A similar piece, co-authored with Matthew Richardson, was published at the New York Daily News:
For the economy to be viable, the financial system must be healthy, and for this to occur, the financial system needs to be cleansed of its poorly performing loans and so-called toxic securities backed by loans, such as mortgage backed securities. This way, once creditworthy institutions and individuals come to the market looking for capital to borrow, financial firms will be in a position to lend them the money and more generally able provide financial services to the economy.
It is time for a special insolvency regime for systemically important financial institutions (non-bank financial firms and bank holding companies)
Finally after a year of delays Geithner and Bernanke have come to agree about the need for a new insolvency regime for systemically important financial institutions (bank holding companies and non bank financial institutions). This new insolvency regime will allow to take over in orderly way – rather than a disorderly bankruptcy like in the case of Lehman – insolvent systemically important financial institutions. Let me explain next why we need this special insolvency regime in order to orderly nationalize/takeover insolvent financial institutions and banks…
From the New York Times Deal Book:
Dr. Doom Finds Promise in Obama’s Toxic-Asset Plan
March 24, 2009, 6:23 pm
“Nouriel Roubini, a/k/a “Dr. Doom,” is giving the Obama administration’s new plan to buy toxic assets the thumbs up”
I have been traveling for the last week, first Italy, then Beijing China and now arrived to London. I have been busy in non stop meetings and conferences and unable to blog much. But you can expect in the next few days a few new items on the issues of the day:
– The New York Daily News will publish on Wednesday an oped that I wrote with my colleague at Stern Matt Richardson on the Geithner plan. We see it as a positive step on the way to clear toxic assets from banks’ balance sheets with two caveats: first, banks may be unwilling to face reality and sell assets at prices below their current marks as that will expose further losses and writedowns; so they should be forced to sell such assets (after the stress tests have shown their problems); second, the sale of loans and securities will show the insolvency of some financial institutions; thus, those institutions should be shut down.
Here is below an English translation of an article in the Italian financial newspaper Il Sole 24 Ore that summarized a presentation about the US and global economy and financial markets that I recently made in Italy:
Yours truly is among the finalists: AGE: 49 OCCUPATION: Economics professor PREVIOUS APPEARANCES ON THE TIME 100: 0 PRO: He warned of a subprime meltdown as early as 2006, and the thoroughly spot-on, reliably depressing predictions that followed have made him one of the most sought-after prognosticators in the country. CON: Presumably not much fun […]
Intelligence Squared U.S. Debate Audience Blames Washington More Than Wall Street for Financial Crisis
On Tuesday this author participated in an Intelligence Squared debate on whether the Washington should be blamed more than Wall Street for the financial crisis. The author sided – together with Niall Ferguson and John Gordon Steele – with the view that Washington should be blamed more than Wall Street even if – as I agreed – many bankers and investors were greedy, incompetent and taking excessive risk. The audience of 700 sided with our side in a vote at the end of the debate. But maybe the fact that the debate took place in New York – with the audience having many financial market participants biased the results on our side; if the same debate had taken place in Washington probably a majority of that wonk city crowd would have blamed more Wall Street. And while I emphasized the flaws of poor regulation and supervision and easy money and credit policies I could have certainly argued for the other view as arrogance, excessive risk-taking and greed was widespread among the Masters of the Universe of Wall Street.
Following the great success and popularity of the Finance & Markets Monitor, Emerging Markets Monitor, U.S. EconoMonitor, Global Macro EconoMonitor, Asia EconoMonitor, Latin America EconoMonitor and the Europe EconoMonitor RGE has just launched a distinguished and highly prestigious blog: the Peterson Institute for International Economics Monitor.