Nouriel Roubini's Global EconoMonitor

RGE’s Weekly Roundup

Check out all of the RGE analysis and EconoMonitor contributions that were published this past week at

RGE Analysis:

In Venezuela Devaluation: Alo Presidente Arnab Das, Bertrand Delgado, and Natalia Gurushina analyze the implications of Venezuela’s move to devalue the bolivar and consider contagion, inflation and the impact on the markets. [Available to RGE Clients Only]

In Sovereign Debt: The Developed World’s Next Big Problem? Arpitha Bykere, Elisa Parisi-Capone, and Katharina Jungen examine the deterioration of sovereign balance sheets in several advanced economies and the looming threat of debt downgrades. [Available to RGE Clients Only]


On the RGE Analyst’s EconoMonitor, Lee Hudson Teslik looks at the political implications of Nigerian President Umaru Yar’Adua’s lengthy absence from his post, both on his mandate as well as on the political standing of his vice president, Goodluck Jonathan, and looks at the possible effects on the markets.  Please read Nigeria’s Presidency: Fallout Scenarios from Yar’Adua Health Scare?

In Risk of a Chinese Bust?, as the World Economic Forum released its annual Global Risks Report, Rachel Ziemba considers the likelihood of China sliding to 6% growth, a full blown sovereign debt crisis and a major oil price spike.

Don’t miss RGE’s Wednesday Note – Sovereign Debt: The Developed World’s Next Big Problem? by Arpitha Bykere


On the Finance & Markets Monitor, Alex Pollock argues that the fundamental problem behind financial busts and crashes is not incentives, rather knowledge and inevitable ignorance of the future.  See Error vs. Fraud.

In An Entente Cordiale for the Big Banks? Roy C. Smith and Ingo Walter suggest big banks and financial conglomerates take initiative in coming to terms with the general public, their regulators, and their own investors or they should be prepared for the public to do it for them.

In  Regulators Seek to Throw Light on Hedge Fund Impact in Energy Trading, Darrell Delamaide analyzes the effects of speculators on energy prices.

Also on the Finance & Markets Monitor:

The Case for a Supertax on Big Bank Bonuses by Simon Johnson

The Most Stunning (and Uncommented on) Revelation in Too Big to Fail by Yves Smith

The Financial Crisis Inquiry Commission: Ready for a Breakthough by Simon Johnson

More from “The Lion” by James Kwak

Will We Get “Sensible, Comprehensive Financial Reform” by Mark Thoma


On the Peterson Institute for International Economics Monitor, Joseph E. Gagnon argues that the way to reduce the cost of a bursting bubble is to reduce leverage and stresses the need for reforms to greatly reduce the leverage of financial institutions.  Read Monetary Policy and Asset Bubbles in 2010.

In A Growing US-China Rift, Steve Weisman interviews Nicholas R. Lardy who says relations with China are deteriorating over climate change, Iran, and the possible return of global current imbalances.


On the Global Macro EconoMonitor, Edward Hugh explains why it is unrealistic to expect the global recovery to be lead by an expansion in the German and Japanese economies.  See Double-Dip Worries in Japan and Germany.

In Changing Times: Global Governance Reform and the IMF, IMF First Deputy Managing Director John Lipsky discusses the evolution of global governance following the financial crisis and the role that the International Monetary Fund can play, including strengthening systemic stability and improving its crisis-prevention capacity.


On the U.S. EconoMonitor, Mark Thoma presents an argument, with which he does not agree, that A Job-Rich U.S. Recovery is Still Plausible.

In The Letter and the Spirit of Monetary Policy Models & Agents attempts to gauge the role of monetary policy in the wake of the giant credit/asset bubble, which caused the financial crisis.

In The Bad Job Numbers and the Secret Second Stimulus, Robert Reich urges more spending in the short term to create jobs, but recognizes the political challenges.

Also on the U.S. EconoMonitor:

More Employment Charts by Barry Ritholtz

It’s All about Jobs…and Interest Rates by James Picerno

Why Obama Must Take on Wall Street by Robert Reich


On the Emerging Markets Monitor, Michael Pettis sees currency talk to be the flavor of this year and considers the concerns of various countries over the currency markets.  Read Everyone Wants to Talk about Currencies.

In  Two BRICs: India vs. Brazil, Rebecca Wilder compares the economic prospects of India and Brazil.

Also on the Emerging Markets Monitor:

East vs. West by Walter Molano

Don’t Blame Mother Nature by Otaviano Canuto


On the Asia EconoMonitor, Edward Harrison views China’s economy as a bubble economy and warns bubbles don’t deflate, they pop.  Read The Chinese Bubble Economy.

In China’s Trade and Balance Points to Inflation, as record trade flows are reported in and out of China, Rebecca Wilder wouldn’t be surprised if the government allows the yuan to appreciate sooner than expected.


On the Latin America EconoMonitor, Alejandro Schtulmann considers the dynamics in four broad areas that outline the prospects and challenges for Mexico in 2010.  See Outlook for Mexico in 2010.

In Argentina’s Outlook: Political Issues Hurt a Favorable Economic Environment, Fausto Spotorno looks at the political conflicts that might generate uncertainty in Argentina despite promising economic prospects.

Don’t miss the following pieces by Walter Molano:

Peru: Hands across the Amazon

In Praise of Roads


On the Europe EconoMonitor, Edward Hugh continues to report on Spain’s economic situation.  See  Mr. Bean Meets the Three Wise Men.

In Tax at 50% is a Good Way to Kill the Golden Goose, David Smith looks of the top rate of tax in the UK and the historical implications of its determination.

In The Minister’s Ceiling to “Foreign Born” Students in Italian Schools, Paolo Manasse considers the logistics and economic challenges of integrating  “foreign” students in Italy’s schools.

10 Responses to “RGE’s Weekly Roundup”

blindman tooJanuary 16th, 2010 at 2:55 pm of Cameron L. Cowan Partner Orrick, Herrington, and Sutcliffe, LLP On behalf of the American Securitization ForumBefore the Subcommittee on Housing and Community Opportunity Subcommittee on Financial Institutions and Consumer CreditUnited States House of RepresentativesHearing on Protecting Homeowners: Preventing Abusive Lending While Preserving Access to CreditNovember 5, 2003.Thank you Chairman Ney and Chairman Bachus for holding this hearing and the opportunity to testify today on the role and importance of securitization in the mortgage industry. My name is Cameron Cowan. I am a partner at the law firm of Orrick, Herrington, and Sutcliffe. Within Orrick, I serve as the managing director of financial practice and as a member of the firm’s executive committee. I am also a member of the American Securitization Forum’s (ASF) executive committee and I chair the ASF’s Legislative and Judicial Subcommittee. The ASF, an affiliate of The Bond Market Association, is a broadly-based professional forum of participants in the U.S. securitization market. Among other roles, the ASF members act as investors, issuers, underwriters, dealers, rating agencies, insurers, trustees, servicers and professional advisors working on transactions involving securitizations.For the last 16 years, my law practice has focused on structured finance—also known as securitization. My knowledge of subprime and predatory lending generally comes from the perspective of the secondary market. In my testimony today, I will focus on the securitization process, the growth of the industry and the many benefits securitization brings to consumers (including subprime borrowers), investors and issuers…..ConclusionsSecuritization reflects innovation in the financial markets at its best. Pooling assets and using the cash flows to back securities allows originators to unlock the value of illiquid assets and provide consumers lower borrowing costs at the same time. MBS and ABS securities offer investors with an array of high quality fixed-income products with attractive yields. The popularity of this market among issuers and investors has grown dramatically since its inception 30 years ago to $6.6 trillion in outstanding MBS/ABS today.The success of the securitization industry has helped many individuals with subprime credit histories obtain credit. Securitization allows more subprime loans to be made because it provides lenders an efficient way to manage credit risk. Efforts to curb “predatory” lending that inhibit the legitimate use of securitization by assigning liability to the purchaser of a loan or some other means, threaten the success of the beneficial subprime market. Secondary market purchasers of loans, traders of securitized bonds and investors are not in a position to control origination practices loan-by-loan. Regulation that seeks to place disproportionate responsibilities on the secondary market will only succeed in driving away the capital loan purchasers provide in the subprime market.I urge Congress to move with great care as it addresses the problem of predatory lending. The secondary markets are a tremendous success story that has helped democratize credit8in this country. Well intended, but overly restrictive, regulation in this area could easily do more harm than good. This is particularly the case when state and local governments craft disparate anti-predatory lending statutes that place different compliance burdens on the secondary market. For this reason, the ASF urges this committee to consider legislation to pre-empt the authority of state and local governments in the area of predatory lending and to construct a safe harbor from assignee liability for secondary market participants.Thank you again for the opportunity to testify today……….??????????

PeterJBJanuary 16th, 2010 at 6:34 pm

Interesting article blindman; very interesting indeed:1. As you may remember, all and sundry have being placing the blame for the global economic collapse (GEC) on “scumbags”, “lowlifes”, “Joe Six Packs”, etc., etc., for taking on subprime mortgages which they could not afford and hence default… blah, blah blah.But, as you can see from a Professional involved in the industry and giving testimony, assumed to be under oath state categorically that a main function prupose of the securitization processes, were in fact designed to bring housing to such persons that normally would never have access to the necessary funding and thus bring a reality into the perspective of Cause. Surely then they, the “lowlifes” etc., cannot and should not be forced to carry the full weight and burdens of guilt which clearly hangs elsewhere? As Ryskamp would say, “to be housed is a basic human Right” or words to that effect!2. And to the forefront one needs to consider that the Head of that economic regulator that demands secrecy in its dealings, that is Mr Benanke of the Federal Reserve, after assuring to World that the economy was just fine and dandy, needed to be briefed on the workings of the detailed securitization process (of the financial industries), the major national industry of the day, as he knew nothing at all about such things.Bottom-line: The economic regulators, that is to say “leadership” didn’t have a clue as to that which was their mandate (questionably)and didn’t really give a damn but were arrogant and remain insolent until this day. Now it is revealed as to why Mr Benanke demands total secrecy which is really just to keep his incompetence hidden from sight and to protect the guilty.I see nothing wrong in “democratic credit” after all we are all human and all have housing needs (remember John Ryskamp?) but I do see a lot of things wrong in “leadership” such as its lack of integrity and lack of responsibility it is performance and priority.So, this gentleman’s testimony gives total support to my arguments that this crisis is a “leadership crisis” defined as Hanlon’s Razor, incompetence, insolence arrogance, stupidity, etc., etc., rising to personal agenda, cover-ups, lies, theft and the misappropriation of public funds for the use by bankrupt morons who appear to believe that they have been appointed / annointed / directed by God; the Clan of the Cave Bear.And, the oversight that keeps being covered with such insolence and kept out of sight, the intentional driving of house prices, ever upwards, not by demand per se, that is to say the demand for houses, BUT the demand for these type of subprime (and others as well) mortgages for the securitization bundles for other and extended exotic “innovation” enterprises for greater “risk-free: supra-profitability, for an industry totally out of control that has captured completely, its regulator. Or, if you will, housing was merely the base play and not the prime objective of the enterprise; an opportunity.Keywords: securitization | morons | “leadership” | responsibility | arrogance | regulator | integrity

blindmanJanuary 16th, 2010 at 10:37 pm

pjb,i have read the name ryskamp referenced but never seena post by him, he was before my time here..i especially like the line “Conclusions:Securitization reflects innovation in the financial markets at its best.” …”we” were so innocent back in 2003, november 5. to that datei suppose history did show that a greater sucker could alwaysbe found to “invest” in incomprehensible small print withthe blessing of a bonafide slick with low friends in high places,riding/creating the synthetic inflation gravy wave..

PeterJBJanuary 16th, 2010 at 11:19 pm

@ blindmanYes, i got your point and understand. RyskAmp was big on the rights of people to housing and against forced evictions. A bit vocal about such things but mostly correct and additionally supported by lots of legal research, common sense and compassion (not to mention rage).It may be just me, but I believe that if a company goes bankrupt you either reorganize it with new management or wind it up; no other alternatives exist. Problem with the “in-crowd” is that they just keep getting appointed to positions in which they have been shown to incompetent. But this is basic physics as well as being ably described in “Peter’s Principle”. Eric Hoffer’s work’s also gets to the core of this insanity. Misery just loves company!As you have it now, bankruptcy gets the prize is awarded with “mark-to-supra-bonuses” asset reporting and Nobel Awards for all on failure. Hardly a foundation to build a Nation on! But this is just my opine and what would I know as God doesn’t talk to me?There can also be no doubt whatsoever, that when you bribe an eager government (read: “leadership”), you can expect continuing no-risk supra-profitability ad continuum (ad nauseum) especially if you keep your mouth shut.I had my innocence kicked out of me during the later ’70’s and slowly my paranoia scar-tissued and hardened accordingly; it’s an evolutionary learning curve particularly when they send the men in black to make their point. But once your eyes, mind and soul are sensitized, you find that corruptive, criminal practises ubiquitous and pervasive, and little else but forcing square pegs through round holes and then you understand that management is just merely incompetent and expends all their energies hiding this fact from all comers.We bred this state of humanity, and it is normal and the simple reason for this is that we demand our privilege, now, er, and in advance and will leave nothing for our future, except debt and something broken. It’s a thing that arises from superficiality and quantitative preferences that surrounds statistical reckoning and their ease of manipulation; call it a “model”, or “modelling”.Call it shilling mediocrity as excellence, a game that has been well overplayed and is naught but bullsh*t (store high in transit).Or, the secret of civilization is to build for the future.I must also add that “usury” has been known as a curse of civilizations for thousands of years and has been banned in numerous countries and it is sad that all these academic faith based economists du jour (of influence), have just (re-)discovered this simple trick of getting rich quick, while ignoring thousands of years of written history and the destruction that has been wrought in its name and practise.Keywords: millennia | thousands | usury | slicks | stupidity | ignorance | insolence | devastationHo hum

blindmanJanuary 17th, 2010 at 11:11 am

pjb,and all other sentients. thank you for your insights,brilliance, and effort in articulating the truth as it is.without you we would all be fumbling around in the dark evenmore than we find ourselves to date. you have given us all a greatgift and it should be recognized and appreciated so let mesay it for all those who would but do not, thank you! we knowthat we cannot know how future thinkers and seekers will searchfor guidance, insight and inspiration and recognize truth whereit can be found. but we know that search will take place becausethe only thing that sustains mankind is truth, whatever that may be.( a reflection of “light” transiting integral information ). upand down the ladder of consciousness. i digress.i don’t know about the word “God” but i do know the sourceof what i hear in my ear an in my mind and heart. that is morethan enough..check this …a reflection on a moment of repose. appreciationof something so perfectly dynamic, created, fluid and reflected.and available and common (formerly) and essential to satisfy material thirst.what the world seems to have lost and mustrediscover. ” how shall i drink all this ” ? it seems theanswer is .. by recognition of the “Self” , becoming conscious,Being?Richard Wilbur (b.1921) BrookBy Richard WilburAt the alder-darkened brinkWhere the stream slows to a lucid jetI lean to the water, dinting its top with sweat,And see, before I can drink,A startled inchling troutOf spotted near-transparency,Trawling a shadow solider than he.He swerves now, darting outTo where, in a flicked slewOf sparks and glittering silt, he weavesThrough stream-bed rocks, disturbing foundered leaves,And butts then out of viewBeneath a sliding glassCrazed by the skimming of a braceOf burnished dragon-flies across its face,In which deep cloudlets passAnd a white precipiceOf mirrored birch-trees plunges downToward where the azures of the zenith drown.How shall I drink all this?Joy’s trick is to supplyDry lips with what can cool and slake,Leaving them dumbstruck also with an acheNothing can satisfy………………………………………….comment: i would like to see “Nothing” printed in quoteslike this “Nothing” as in “”Nothing” can satisfy.” as itworks , for me, much better in relation to “How shall idrink all this?”ps. we are being led by addicts who have not realized theyhave a problem. intervention is called for. they have beentold but they do not hear. under the influence.i wish i was around when ryskamp was telling it like itsometimes needs to be told. high interest vs. no interest toborrow, yet park and collect interest at the trough of thefuture slave labor pool. high interst collected from those who needto sleep under a roof ( jobless , outsourced ) , high interestcollected and distributed to those who have vacation homes in thesouth of france. or you name it. i puke here, repose complete.indeed, ” how do i drink all this “???? it is the system by debt is money! securitization is just another means to create/ transfermore debt / money / risk / reliquify the liquid / a super solvent / anattempt at bottling and patenting the universal solvent.??like a dog, i always return to my own vomit, but, i’m not alonein this.pss. paper headline 1/17/2010FactFor every 10 homes sold on LI8 others started foreclosureInside the startling statistics.within a few mile radius of these communities millionairesare making money on the securitization of these bad debts / loans /foreclosures and constructing new mcmansions as shrines to theirown vanity, ignorance and cruel folly. again, i return to myvomit. thanks to the bailout of wall st. etc… 100 cents on the dollar and all that….time to walk.

blindmanJanuary 17th, 2010 at 2:04 pm a very interesting entry for the record pertaining to thehistory of securitization..OCTOBER 14, 2008The Fantasy Testimony ContinuesArnold KlingBelow is the longest blog post ever. It contains the “written remarks” that extend my fantasy testimony…( iv’e seen longer posts, it is not that long )”1.The History of Mortgage SecuritizationSuppose that you were a bank executive and were offered a choice between two methods for holding mortgage loans. Call them Method A and Method B.Under Method A, you employ the mortgage originators. You give them rules and instructions. You set their incentives. You can choose whether to pay them only for accepting loans or to also pay them for reviewing and rejecting loan applications where appropriate. They originate loans in your local community. The loan terms are set by your policies. You receive the borrowers’ payments and deal with loan delinquencies according to your procedures. Sometimes, your procedures call for rapid foreclosure. In other instances, they dictate some sort of loan workout.Under Method B, you hold a security interest in a pool of mortgages. These loans were originated by people unknown to you, whose only incentive is to maximize “production,” without regard to quality or risk. They are paid when they originate a loan, never for rejecting a loan application. The loans come from far and wide, including many places with which you are not familiar. If borrowers are delinquent in their payments, you have no control over how this delinquency is addressed.Most executives, if offered this choice, would prefer method A. Compared with Method A, Method B does not pass a simple sanity check. Using economic jargon, method B has much higher “agency costs.” Under Method A, the people acting as the agents of the executive work for the bank. The executive has the power to align the incentives of the agents with those of the shareholders of the bank. Under Method B, the agents who originate home mortgages are working against you, not for you. They are trying to slip as many bad loans through the door as they can. It is up to someone else, not you, to stop them–assuming that they care..”…Today, three-fourths of mortgage debt in the United States is held using Method B, also known as securitization. How did this happen?…The secondary mortgage market began in 1968. In that year, President Lyndon Johnson was besieged. His war in Vietnam was unpopular. Along with his cherished War on Poverty, it was raising the need for government borrowing. Each time the President came to Congress to request an increase in the ceiling of the national debt, he faced embarrassment and attacks. To forestall this, his Administration looked for ways to get government housing programs off the books.One solution was to sell the Federal National Mortgage Association (Fannie Mae) to private investors. Fannie Mae had been set up in 1938 as a national purchaser of mortgage loans originated by third parties, called mortgage bankers. Fannie Mae did not securitize loans, at least to this point. Instead, it held mortgage loans in its portfolio, like a giant Method A lender with the mortgage bankers as its agents. Selling Fannie Mae took Fannie Mae’s debt off the government books, which made the national debt appear smaller.” …….comment: again, the dog returns to his vomit. and a nationturns to endogenous poverty to finance / execute exogenous destruction / liberation / occupation.occupation through securitization. perhaps basic physics asthat relates to unconscious fungal mat proliferation / spread.a local biological imperative wrongly transferred to the realm of the social and universal? mind.?ps.every mind is an artistic criminal poised to claim …..ureka! this is my world. my sky. my land. my universe!my dna here and out there! it is one and it is myself, call itwhat you like and say what you will but.. ureka!it takes an intellectual criminal to do that, perhaps at certaintimes in uncertain places?but with this realization of self, empowerment, is thecomplete realization of responsibility. and the fact thatwhat you do to the “other” you do to yourself. if wecan ever grasp that then things will quickly change.anyway….

blindmanJanuary 17th, 2010 at 7:35 pm

and this link.. 12, 2008More Fantasy TestimonyArnold Kling…”When I left the mortgage industry, more than ten years ago, this sort of crisis was unthinkable. In the meantime, a number of developments took place that produced the crisis. It is a phenomenon that I believe I now understand, but only in hindsight.I reject the two main partisan narratives of this crisis. The Left wants to blame deregulation motivated by free-market ideology. It is true that poorly-conceived regulation was a major factor. However, the blindness of key regulators reflected not ideology but ordinary bureaucratic information loss. The knowledge that existed inside Freddie Mac, Fannie Mae, Treasury, and the Federal Reserve did not flow up to the leaders of those organizations.The Right wants to blame overly-aggressive lending to minorities and low-quality borrowers, promoted by Congress and regulators. While it is true that many loans were made that should not have been made, the problem was not the color of the borrowers’ skins or the content of their credit reports. The problem was low down payments and a large proportion of mortgages for what the industry calls non-owner-occupied homes or investor loans, and what ordinary people would think of as speculators.The crisis had three main causes. First, securitization got out of hand, approaching three-fourths of total mortgage debt outstanding. Second, housing speculation got out of hand. Third, the gap in executive understanding of financial innovation, what I call the “suits vs. geeks divide,” got out of hand.Cause #1: SecuritizationContrary to popular myth, the growth of securitization did not reflect the genius of Wall Street. Instead, it was both the intended and unintended consequence of regulatory decisions that penalized traditional mortgage lending. Had the competition between securitizers and traditional depository institutions been free and fair, I believe that the securitizers would have lost.Whatever its theoretical merits, mortgage securitization in practice is a tool for hiding risk and exploiting regulatory loopholes. These loopholes often were pried open by lobbyists. It was an unhealthy triangular trade in which campaign contributions from securitizers were exchanged for Congressional influence of regulations which in turn created profits for the securitizers. I sketch some of this history in my written remarks.Recently, the main force driving mortgage securitization has been bank capital requirements. These penalize banks for holding loans that they originate themselves. Perversely, the FDIC requires banks to hold less capital against securities backed by low-down-payment mortgages originated by strangers than against high-down-payment mortgages originated by staff under the bank’s supervision and control. If the risk-based capital metrics had been tied to the true risk of the underlying assets, then I am confident that banks would have driven Fannie, Freddie, and the private securitizers of Wall Street out of business. Without the distortion of misguided capital requirements, we would have seen old-fashioned loans, originated by old-fashioned prudent underwriting standards, and held in old-fashioned bank portfolios financed by deposits and debt instruments, not by exotic derivatives. Again, this will be explained in more detail in my written remarks.”…

PeterJBJanuary 18th, 2010 at 1:55 am

This ought to scare the crap out of everyone out there:”Some conspiracy theories create serious risks. They do not merely undermine democratic debate; in extreme cases, they create or fuel violence. If government can dispel such theories, it should do so. One problem is that its efforts might be counter productive, because efforts to rebut conspiracy theories also legitimate them. Wehave suggested, however, that government can minimize this effect by rebutting more rather than fewer theories, by enlisting independent groups to supply rebuttals, and by cognitive infiltration designed to break up the crippled epistemology of conspiracy minded groups and informationally isolated social networks.” government the mandate to think for the unwashed masses and get paid implementing their cognitive (hah) infiltration and Gee I’m a Havard Law Professor so, like Benanke, I’m right and this should be done… Himmler comes to mind… This guy is a moron!”Anger arises out of rightness”. (Seneca the Younger) I paraphrase and he was right!Ho diddly hum

PeterJBJanuary 18th, 2010 at 3:13 am

Same message using different words (regarding the above proposed “cognitive infiltration”).”None are more hopelessly enslaved than those who falsely believe they are free.”: Johann Wolfgang von Goethe – (1749-1832)=”A nation of well informed men who have been taught to know and prize the rights which God has given them cannot be enslaved. It is in the region of ignorance that tyranny begins.” — Benjamin Franklin – (1706-1790) US Founding Fatherwhat is real scary is that you educate these people and crown them professors, grant them tenure and they turn around and act like imbeciles.”Leadership” bah!Ho hum