Roubini: $2 Trillion in Debt Losses

Nouriel Roubini:

Barron’s: Unfortunately for the rest of us, you have a pretty good track record. How much more misery lies ahead?

Roubini: We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of next year. A systemic banking crisis will go on for awhile, with hundreds of banks going belly up.

Which banks, specifically, will fail?

I don’t want to name names, but many, given the housing bust, will become insolvent. Their losses are mounting because they have written down only their subprime loans so far. They haven’t started writing down most of their consumer-credit losses, and reserves for losses are much less than they should have been. The banks are playing all sorts of accounting gimmicks not to recognize them. There are hundreds of millions of dollars outstanding in home-equity loans that eventually could be worth zero, too.

Which forces [on the consumer} for instance?

The U.S. consumer is shopped out and saving less. Debt to disposable income has risen to 140% from 100% in 2000. Hit by falling home prices, the consumer no longer can use his house as an ATM machine. The stock market is falling and (issuance of) home-equity loans (has) collapsed. We have a credit crunch in mortgages, and gas is around $4 a gallon. Everyone says, ‘yeah, that’s true, but as long as there is job generation there is going to be income generation and people are going to spend.’ But for seven months in a row, employment in the private sector has fallen.

The most worrisome thing is that in spite of the rebates, retail sales in June were up only 0.1%. In real terms, they were down. If people were not spending their rebate checks in June, what will happen when there are no more checks?

Video is here

Yes, That’s $2 Trillion of Debt-Related Losses
INTERVIEW: Nouriel Roubini, Economist and Professor, New York University
Barron’s AUGUST 4, 2008

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What's been said:

Discussions found on the web:
  1. Jim commented on Aug 2

    I think your website has been hacked. It will not load with Internet Explorer.

  2. lutton commented on Aug 2

    >>If people were not spending their rebate checks in June, what will happen when there are no more checks?

    Gee, it makes you wonder if the stimulus check plan was just enough to get us barely through to Jan 2009, when this problem will be some other congress’ and WH’s to handle.

  3. Thomas Pochari commented on Aug 2

    I agree Barry, your server has likely been hacked, it will not load with Explorer.

  4. lutton commented on Aug 2

    >>I think your website has been hacked. It will not load with Internet Explorer.

    It’s a problem with sitemeter: a script of theirs is crashing many, many sites under IE.

    It’s okay under Opera and Firefox.

    Pull the sitemeter script off the site until they fix the problem.

  5. lutton commented on Aug 2

    It’s always where you’re on vacation, right Barry?

    more about sitemeter here:

    SiteMeter, the popular web statistics service, is having a huge issue at the moment. It appears that the statistics code will crash anyone visiting a site using SiteMeter with Internet Explorer 5.5, 6 or 7! That’s a whole lot of potential visitors getting “Internet Explorer cannot open the internet site” errors, and not OK of course. I’d expect people fleeing from SiteMeter now…

    So what can you do if you’re a SiteMeter user? Well, remove the SiteMeter code, probably located in your site’s footer but that depends on where you put it of course. SiteMeter won’t be able to track your visitors when the code is removed, but on the other hand the people visiting your site will be able to actually see it…

  6. Joshua commented on Aug 2

    “We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months,”

    He’s upped the ante on this prediction. Until very recently Roubini was predicting that the recession would last 12 to 18 months.


    Forbes: How Many Trillions Lost?

    FT Alphaville: You’re on my list

  7. Greg0658 commented on Aug 2

    Thanks for the info Jim & Tom and all others. I thought I was bad and got my IP blocked.

    I’m at the library and am surfing on IE6 via DSL not Comcast broadband.

    Version: 6.0.2800.1106.xpsp2.030422-1633
    Ciper Strength: 128-bit
    Product ID:55274-640-xxxxxxx-xxxxx
    Update Versions:;SP1; Q324929; Q810847; Q813951; Q837009; Q832894; Q831167; Q823353

  8. Andy Tabbo commented on Aug 2

    This guy has been so spot on with his economic predictions, I’m not sure how he can be ignored at this point.

    I don’t think the baseball analogies are useful at this point.

    This whole thing is a locomotive derailment….

    The locomotive engine (levered up financial institutions) have fallen off the tracks into the ravine and now all of the other cars are starting to jump the track as well.

    People are missing the larger picture right now. They see the bottoming of the financials as an “all clear sign,” thus the bottom callers out in force.

    The next big move down will not be because of finanicals or housing…stocks do stop going down at zero. The next move down will come from abroad….we are going to get some shockingly bad economic data out of some of the “hot” markets and that will cause a ripple effect here. Our larger “over owned” multinational industrials will get hammered on the back of a slowing international picture. I think this is what’s going to cause the next really large wave down.

    I see the S&P 500 bottoming out in late 2009. The final wave down next year will be as a result of 100’s of banks going out of business because of commercial loans and credit card loans going to ZERO.

    I think by the end of this month Cramer will be regretting the “bottom is in” call. I can already hear the backstepping now…”Look. My bottom call was based on the financials bottoming. And, hey, the XLF has not made a new low. So you see, I’m right. The problem is some of these Chinese companies…..”

    – AT

  9. peterthepainter commented on Aug 2

    Roub. the one to watch man.
    I use motigo webstats, on several sites, for several years and so far no probs.

  10. Rich Shinnick commented on Aug 2


    Roubini is right, but his presentation is so “harsh” so nobody wants to listen-he does not sugar coat anything. The fundamental problem is that in America, government and many Americans view debt as a “solution.” I have several acquaintances who have looming money problems and they all stem from too much debt taken on to support over spending based on illusory real estate wealth…

    The amazing thing is that everyone’s first response when they discuss their “solution” is “I need to get a loan. Or, I am working on getting a loan.” Never, ever, ever, “I need to get a job.” or “I need to work my way out of this.”

    Debt solves all problems, right? Kicking the can down the road is becoming a national sport! Hell, in California here we threw out Gov. Davis and elected Gov. Swartzenegger because Davis raised taxes and the terminator promised to “cut up the credit cards.” What did he do? Borrow, borrow, borrow! Didn’t cut a thing. What a disappointment! There was a state senator, Tom McClintock who is a true fiscal conservative who ran in that election-got like 12% of the vote as I recall-too radical, he would have actually tried to cut government and he was specific about what he would do. Way too radical!

    Now the state is practically BK and things are getting worse. But hey, the federal government still has its credit cards, so expect another round of borrowing to pay for more “stimulus” or “can kicking” as I now call it….sad. We are going to pay. Big time.

  11. Winston Munn commented on Aug 2

    And another one’s gone, and another one’s gone, another one bites the dust….

    “NEW YORK ( — Federal regulators closed Florida’s First Priority Bank on Friday, marking the eighth bank failure of the year.”

    My advice is to use a bank that is only open Monday through Thursday – lately, Fridays appear to be a risky day for banks.

  12. latesummer2009 commented on Aug 2

    Roubini is the only one to listen to. He is not controlled by any financial institution and is “Telling it Like it Is”. The longer the banks play games the worse it gets. The housing game is collapsing and the sooner it does the better. We need to flush out all this garbage even though it will be painful.

    The Westside of Los Angeles is feeling the pain now with high end areas of Bevely Hills, Santa Monica, Brentwood, Pacific Palisades, Malibu and Venice demonstraing significant declines during June.

    The next year will be rough…

  13. donna commented on Aug 2

    Oh, ggod grief people, just use Firefox with NoScript.

    So much better. People still use IE? Ew!

  14. Greg0658 commented on Aug 2

    I back at the home/office and posting from here. Um…

  15. John Thompson commented on Aug 2

    What I want to know is, if all these banks have another 18 months of FASB level 3 tricks, is that when all the insolvency causes the firesale in Treasuries?

    Or, will the current insolvency just turn to level 4 or something? What’s the trigger? Is money even real any more?

  16. Mel commented on Aug 2

    Inflation is the worst solution–and the only one.

  17. vvi11 commented on Aug 2

    2nd that – firefox with noScript.
    Since using it, it’s surprised me how many scripts from other domains are tucked away in sites all over the place.

  18. Bob A commented on Aug 2

    IE’s workin here.

    Doesn’t it seem like all we gotta do is just territorialize a couple more oil rich countries and everything will be fine, no?

    A little surge here. a little surge there. Here a surge, there a surge, everywhere a …

  19. leftback commented on Aug 2

    What is Internet Explorer anyway? and what is a PC?

    The collapse of the financial industry is not going to be good for Dell, Microsoft or Bloomberg.

  20. Robert Mugabe commented on Aug 2

    Dear, George, Hank and Ben. The economy is really buzzing here (or are those the flies on the corpses?) in Zimbabwe. Our citizens are busy all the time (carting banknotes around in wheelbarrows) and we can truly recommend inflation as the cure for a weak currency. Just transfer your personal assets into a stronger currency before you turn on the printing presses. Oh and cancel the elections, you can be Prez for Life.

  21. Bruce commented on Aug 2

    I went to U-Tube this morning and watched some of Professor Roubini’s previous predictions…Not much new, expect for the amount of losses, which are higher…he has been very accurate so far, much more accurate than anyone else in the national spotlight.

    I did notice that in the latest employment data, that the number of hours worked has dropped by another .1. I agree that one possible factor in the relatively “strong” job numbers is that it seems the peeps are being asked to work less hours so far, rather than being terminated. I think losses accelerate through the end of the year.

    Bruce in Tennessee

  22. Andy Tabbo commented on Aug 2

    America is one humongous “trust-based” business. The accumulation of massive debts was based on the idea that we were “going to figure it out” and keep on working hard to pay back the debts. “You can Trust us.” What happens when the trust breaks down?

    The problem is Americans (not everyone) have gotten soft. There are a lot of people in this country who don’t know what it means to be accountable and responsible for their actions and decisions. It starts at the top with the Executive and Legislative Branches of our Government. When was the last time you heard someone in DC say: “I’m sorry. We made some bad decisions. I will work harder in the future.”

    Unaccountable Americans are just walking away from their debts. They don’t care…it must be someone else’s fault why they can’t make the mortgage or car payments. It’s someone else’s fault their credit card debts are too high. It’s someone else’s fault they took out that second mortgage to waste the cash on crap they don’t need.

    I can see some civil unrest in the next 18 months and a lot backlash towards China, India and the Middle East. You see, we need to blame someone for our problems…it cannot be our fault.

    – AT

  23. Valuation Consultant commented on Aug 2

    I have just visited The Big Picture site for the first time, having found it on the Blogroll of The Oil Drum site. This post’s comments on the U.S. consumer are very much in line with my own. In August, 2005 I concluded it likely that a significant portion of U.S. consumer spending was resulting from consumer borrowing against escalated house prices. At the same time I spent time researching the U.S. trade deficits, manufacturing job losses, and national debt. I concluded the U.S. dollar had to drop against other currencies, and realigned all of my market investments into precious metal and oil & gas stocks, and Canadian cash (I am Canadian). My thinking at the time also caused me to develop a website, and a related blog, both recently introduced to the Internet. We regularly post commentary on Valuation, Economic, and Stock Research issues. The quality of the posts and comments on The Big Picture is such that we have added it as a Bloglink on our Blog. The website, which focuses on Canadian Mining and Oil & Gas stock research, includes an Economic Research tab where each month we update U.S. and Canadian (among other country) economic charts summarizing Trade Deficits, Manufacturing and Service Job gains and losses, Housing statistics, Consumer Confidence, and so on. Access to the website currently is free. I am posting this comment in order to make Big Picture contributors aware of our website and related Blog given their obvious interest in the economic drivers that I (and seemingly they) believe are important both currently and prospectively.

  24. larster commented on Aug 2

    Many blog sites would not load this morning.

    Roubini defines rumpled. For god sakes at least hang the suit on the shower rod and turn on the hot water for a few minutes.

  25. Bruce commented on Aug 2

    We are now working 1/2 hour per week less than 12 months ago…33.6 hours per week..the greatest loss is “financial activites” where a full hour per week has been lost the last 12 months…(surprise).

  26. ben commented on Aug 2

    This is somewhat valuable I guess. I will say that I’ve grown tired of these baseball comparisons, 2nd inning, 7th inning, it’s just stupid. It becomes a way to go back on your statements because no one knows how long an inning lasts in economic terms.

    That said, I also disagree with his last statement, what I find most worrisome is not the small retail jump in June but the fact that globally the consumer really appears to be slowing down. The US consumer has been weak for a while now, this is not news, to reference home prices falling and the loss of the home ATM seems less important, home prices have been declining for over a year, if the global consumer continues with weakness then the exports which have been propping up GDP could be in trouble. I don’t put as much into the rebates only because Barney Frank and the like are already pushing a second stimulus, I also believe I heard Obama call for some kind of windfall tax on energy companies which would then be distributed to people ($1k I think) for evergy bills? Just my thoughts.

  27. Bodz adding commented on Aug 2

    “We are in the second inning of a severe, protracted recession.”

    You have to love Roubini.

  28. sergtat commented on Aug 2

    Have you noted that the press and the government AHoles do not call us citizens anymore? we are consumers now, they see us barbing, passing winds and consuming, consuming, consuming so they can play there little dirty games

  29. Richard commented on Aug 2

    i never participated in the debt fueled run up of the last few years instead living within my means and saving money. i got married and had a kid and needed to find a place to settle down. i waited as long as i could but eventually needed to buy something and bought in feb 2007 when the market was over the top and on its way down. i overpaid on my property by about 5% and am currently 10% down. i knew all along this was going to unravel as i’ve been watching it unfold for years yet i also knew for personal reasons i needed to make the investment in somewhere to live. i never looked at my house as an investment vehicle but a place to live. what pisses me off more than anything is a bunch of idiots both at the credit creation and borrowing sides drove up prices well beyond where they should be costing me more money. i told my wife if we jump into this boiling pot of water we have to stay put for at least 6-7 years just to break even on what we paid. seems that’s playing out just as i predicted.

  30. brion commented on Aug 3

    “I went to U-Tube this morning and watched some of Professor Roubini’s previous predictions…Not much new, expect for the amount of losses, which are higher…”

    Roubini, Whitney,Noland etc… i think they’ve all ramped up the truth somewhat gradually actually….woulda been laughed out of the room a couple years back. Truth must be rationed at any rate. There’s precious little of it to go round.

    “Now this nation that I love is fallin’ under attack.
    A mighty sucker-punch came flying in from somewhere in the back.
    Soon as we could see clearly through our big black eye,
    Man, we lit up your world like the fourth of July.”
    Toby Keith-american prophet

  31. dano commented on Aug 3

    My top 5 blogs (in no order) I read EVERY Day:

    1) Nouriel Roubini
    2) Big Picture
    3) Calculated Risk
    4) Mish’s Global Economic Trend Analysis
    5) Naked Capitalism

    Who’s in ‘your five’?

  32. Bodz commented on Aug 3

    As the Dow has gone from 7,000 to 14,000 and as house prices in my neighborhood have tripled, Mish has been unrelenting in his prediction of an unrelenting deflation. I don’t hold that against him as that is what he does; he is a professional doomsayer. Just read and enjoy him for his entertainment value.

  33. me commented on Aug 3

    “Unaccountable Americans are just walking away from their debts.”

    Gee Andy, I wonder where they learned that? Maybe when IBM, HP and the rest walked away from pensions, healhcare, sent our jobs over seas maybe.

  34. Darkness commented on Aug 3

    “Debt to disposable income has risen to 140% from 100% in 2000”

    Does anyone have a link to clear definition of this reference? Is it “debt servicing” (in which case we are truly hosed as a nation) or “debt load” or “total debt if the person paid all of their disposable income toward said debt for X time period”?

  35. Tom commented on Aug 4

    Roubini, Gary Shilling and Joe Battipaglia have been more correct in their forecasts, than most.

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