I had lunch with Nouriel on Friday at Mercer Kitchen in Soho, not too far from his NYU offices. We chatted about many things (he gave me a terrific insight into prior Housing Bailouts). I know the professor for quite a few years now — I was a guest blogger in the early days of RGE Monitor.
One of the things we chuckled over was our press coverage. A few years ago, we were the outliers, the perma-bears, the Cassandras. Now, various discussions of real estate issues, credit problems and recessions aren’t perceived quite so skeptically. I can take a teenytiny bit of credit for him being the media superstar he is these days, as it was I who introduced Roubini to Kudlow back in 2006.
He mentioned that a NYT interview he did should show up in the Sunday magazine this weekend. The paper came this morning, and there he was in all his glory: Dr. Doom.
NYT Magazine Ubiq-cerpt:™
“Over the past year, whenever optimists have declared the worst of the economic crisis behind us, Roubini has countered with steadfast pessimism. 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: waves of corporate bankrupticies, collapses in markets like commercial real estate and municipal bonds and, most alarming, the possible bankruptcy of a large regional or national bank that would trigger a panic by depositors. Not all of these developments have come to pass (and perhaps never will), but the demise last month of the California bank IndyMac — one of the largest such failures in U.S. history — drew only more attention to Roubini’s seeming prescience.
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. Though he continues to issue colorful doomsday prophecies of a decidedly nonmainstream sort — especially on his popular and polemical blog, where he offers visions of “equity market slaughter” and the “Coming Systemic Bust of the U.S. Banking System” — the mainstream economic establishment appears to be moving closer, however fitfully, to his way of seeing things. “I have in the last few months become more pessimistic than the consensus,” the former Treasury secretary Lawrence Summers told me earlier this year. “Certainly, Nouriel’s writings have been a contributor to that.”
Another good piece of weekend reading that is well worth your time.
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Source:
Dr. Doom
STEPHEN MIHM
NYT, August 15, 2008
http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html
“A few years ago, we were…the Cassandras.”
I’ve never understood why that should be considered an insult. After all, Cassandra’s predictions were always correct; it’s just that she was never believed.
“I can take a teenytiny bit of credit for him being the media superstar he is these days,”
Nah, I’ve got my electron microscope on this, and I still can’t see it. ;-)
Roubini, Schiller, and Minsky (R.I.P.)- great All Star Team.
Not leaving out L. Summers who had a great mechanical model- the washing machine- 3 cycles:
Liquidity- 1. a kind of WASH cycle in which unreasonably high asset prices are laundered out of the system. People are forced to sell, sending prices lower.
2. Rinse: the slump in the economy rinses out the habits of the bubble era. Spend less, save more.
3. SPIN: People get dizzy and depressed as their incomes go down. They can’t borrow. Costs are rising. They’re getting poorer.
Where are we now?
This is what Henry Blodget has to say about the article:
“The man who predicted the current economic collapse, Nouriel Roubini, has gone platinum. The cover-story contraindicator suggests that this is a sign of the bottom, but we think it will be a while before Nouriel overstays his gloom.”
http://tinyurl.com/62j6lw
All about Henry Blodget
http://tinyurl.com/2don2d
You missed the money excerpt from the article:
The ’90s were an eventful time for an international economist like Roubini. Throughout the decade, one emerging economy after another was beset by crisis, beginning with Mexico’s in 1994. Panics swept Asia, including Thailand, Indonesia and Korea, in 1997 and 1998. The economies of Brazil and Russia imploded in 1998. Argentina’s followed in 2000. Roubini began studying these countries and soon identified what he saw as their common weaknesses. On the eve of the crises that befell them, he noticed, most had huge current-account deficits (meaning, basically, that they spent far more than they made), and they typically financed these deficits by borrowing from abroad in ways that exposed them to the national equivalent of bank runs. Most of these countries also had poorly regulated banking systems plagued by excessive borrowing and reckless lending. Corporate governance was often weak, with cronyism in abundance.
then that don’t know no history are . . . wait is.nt our leader a history major???
Thanks BR again for this site and your insights. They have definetlly helped me make financial decisions that should help the rest of my life. Another person who I really listened too was Doug Kass, he was also very insightful about today’s issues. I am also very pessimistic about the US economy, over-population, retiring baby-boomers and a monetary policy that relies on consumptiom for growth is going to change the US unless some drastic measures are made.
Just think if I hadn’t been watching Larry Kudlow one night when you were on I may have not be reading this blog everyday. Kind of ironic.
Thanks again
Sad enough no mention is made of someone whom was enjoying less freedom of thoughts and speach and therefore showing more bravery than Cassandra (not Paris, not Apolon)but Mr Roach from Morgan Stanley.
Oddly, Nouriel Roubini is 100% invested in equities:
http://www.ft.com/cms/s/0/7a4c06c4-dbc8-11dc-bc82-0000779fd2ac.html
As of last February, at least. Has he changed his mind since then?
DR. DOOM?
Do they call him that way because his calls where Deep Out Of (the) Money?
Those who converted his calls into put options are swimming in ca$hola now.
P.S. We assume smart timing, a.k.a. watch lists of sectors Roubini targeted then pouncing when the markets (finally) had to agree with him.)
Thanks for the heads-up on a great article Barry. My engineering training taught me long ago to tackle big problems by breaking them down into manageable pieces and doing something about things over which you have control. One could only hope we have (or will have in the future) leaders in government and the private sector who have developed that skill.
why is it that realists are pilloried as “doom & gloom,” “bears,” etc.?
why is it that the delusional goldilocks, ben steinery, drill-drill-drill, NAR supporters aren’t referred to blind shysters & hucksters they are?
bank CEOs constantly get on tv and blatantly LIE, and are considered these great heroes struggling to right their wayward ships.
realists call them on their bullshit, and are dismissed as fear mongerers, cassandras, and are compared to villains from a comic book.
this “dr. doom” name calling stuff really needs to stop.
as long as the media uses this obviously biased language, joe-six-pack is never going to take the problems we have seriously, nor will they understand the gravity of the situation. it really does make a mockery of what we are going through.
It was also Roubini, who, after predicting potential financial system meltdown, argued for aggressive stimulus and intervention to save it, and argued that the stakes were too high to worry about the moral hazard of said undertaking.
Thanks m3…you are right on. Mocking people as “gloom and doom” or “Dr. Doom” sickens me. Its our feeble media’s way of avoiding the facts. The contra-indicator is when you see an article “Pollyana.”
MarkD,
You are 100% correct. Oh, yes, some people learn from history but there’s ALWAYS that small group of people with too much money and power who try to game the system in such a way that even if they lose, the masses lose even more; that’s their worst case scenario. Their best case (pie in the sky) scenario is more power and wealth while the masses hail them as heroes. Eventually a large percentage of these intelligent, educated, psycopathic pigs are destroyed along with huge numbers of hard working, innocent middle and lower class people. For a civilized society, these power trips are never cost effective but then if people who have the power to do damage would think things through, the whole world would be better off. Paul Krugman wrote the following recently in the NY times:
Shortly before World War I another British author, Norman Angell, published a famous book titled “The Great Illusion,” in which he argued that war had become obsolete, that in the modern industrial era even military victors lose far more than they gain. He was right — but wars kept happening anyway.
What do wars have to do with a messed up economy? Everything!
So there you have it; arrogance, pride, sadism or just plain human nature tends to fuck everything up.
What to do? Work hard, pay your debts, treat even the people you don’t like with respect, don’t trust warmonging politicians or aggressive salespeople and keep it simple.
Why is it that realists are pilloried as “doom & gloom,” “bears,” etc.?
Because it is TV, advertizer supported (banks, stock brokers, etc.) and they all want you to SPEND, SPEND, SPEND, whether you have money or not. Pretty much why you have to go to blogs for reality.
Let’s remember what Bernanke said on Oct 27 2005.
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html
This man is Fed Chairman. US can do better than that.
Several weeks ago Tom Keene of Bloomberg had Roubini on as a guest for a half hour or longer. It was great stuff — the sort of thing that makes Tom Keene the best in the business. Keene’s questions were brilliant and he knows Roubini is no quack. No one on CNBC is within a million miles of Keene.
Indeed Bloomberg is the only credible financial network. CNBC and Fox are filled with hacks like Kudlow spouting discredited Reaganomics hallucinations and Money Bunnies (TM) surrounded by advertisements.
with meredith w. on the cover of fortune and everyone talking about SKF, I’d been thinking that it was getting crowded on the short XLF side.
but with Roubini being labeled as Dr. Doom, it doesn’t feel so bad to press the short side.
Time will tell.
@ Zell,
#4 in the cycle is usually REPEAT…but, I don’t know about this time.
I can’t recall a period in recent history when the actual outcome turns out to be as good as forecast by the most extreme optimists, nor as bad as forecast by the most extreme pessimists. The actual outcome usually ends up being somewhere in the middle. To me, that’s the value in considering the opinions of both the optimists and pessimists (choose your own labels for describing these people)…it helps define the boundaries between which the actual outcome is likely to occur.
I can’t recall a period in recent history when the actual outcome turns out to be as good as forecast by the most extreme optimists, nor as bad as forecast by the most extreme pessimists. The actual outcome usually ends up being somewhere in the middle. To me, that’s the value in considering the opinions of both the optimists and pessimists (choose your own labels for describing these people)…it helps define the boundaries between which the actual outcome is likely to occur.
enjoy your pieces barry unlike “mish” who deletes comments that he personally doesn’t agree with. i didn’t realize his blog was out of china. keep up the good work.
Just wrote a post on this earlier today and then I see I’m topped by Barry, who had lunch with the man Friday — at one of Jean-Georges Vongerichten’s restaurants, no less.
A point I made in my post is that Roubini seems to overstate the case with this dichotomy he presents: nationalize the banks or the mortgages. Local papers in Bergen County, NJ last week, and Orange County, CA last month both had articles about local entrepreneurs who are buying distressed mortgages for big discounts and often working out new terms with the homeowners. Why won’t this sort of approach — expanded as more seek profits in distressed mortgages — eventually mop up most of the mortgage mess?
So Barry,
Is it deflation of inflation we get?
Perspiring minds want to know!
I (we) get to make 3 decisions to change the outcome in The Game
Vote > for A, B or C who decides things for us
Buy > A, B, or C that makes one entity stronger than the others
Procreate > ya OR na? which comes first – healthy system to raise offspring in OR soldier/laborer to advance the cause?
Have you read State of Fear by Michael Crichton?
DC wrote:
“Indeed Bloomberg is the only credible financial network. CNBC and Fox are filled with hacks like Kudlow spouting discredited Reaganomics hallucinations and Money Bunnies (TM) surrounded by advertisements.”
DC…I am with you 100%. I am sure Bloomberg is not perfect; but, they seem to embrace the actual data and let the guest shape the meaning of that data without the cheerleading we are accustomed to at CNBC.
And as far as “Drill, drill, drill” is concerned…that doesn’t even warrant a response. Anybody with half a freaking brain can see through that charade. What a joke!!
Dano,
I have mentioned here and in various threads that I feel interest rates have been taken down way too low dating back to the deregulation of interest rates in 1984 and thus driving all investors eventually into equities as the only means of earning a real rate of return.
IMHO, with excessively low interest rates, easy money is directed into areas that it would not normally go into. With new investment in areas already with ample supply (assuming no new demand), the new supply brought online drives prices down further.
Until there is a wash-out, and the cost of capital is increased to a more realistic level, new money will continue to wind-up in investments not producing a high enough rate of return to return a profit.
IMO, DEFLATION will rule for a period of time until the cost of capital is properly priced to accurately reflect the demand and associated risk of the investment.
I feel there are a lot of businesses that will never return the cost of the initial investment because the figure used for the cost of capital used in the analysis was set much too low. In essence, the investment was doomed from the start.
If interest rates ever return to a more realistic level, much of this wasted capital can be avoided.