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New York - Jewish Economic World Guru: Panic In U.S. Stocks About To Unfold, Will Force Market To Shut Down For A Week

Published on: October 26, 2008 06:55 PM
By: Times Online UK
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Dr. Nouriel Roubini, a professor at the New York UniversityDr. Nouriel Roubini, a professor at the New York University

New York - meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown. They could not quite believe his view that the US mortgage giants Fannie Mae and Freddie Mac would collapse, and that the investment banks would be crushed as the world headed for a long recession.

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Yet all these predictions and more came true. Few are laughing now.

What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world.

What happened? The next day trading was briefly stopped in New York and Moscow.

Dubbed Dr Doom for his gloomy views, this lugubrious disciple of the “dismal science” is now the world’s most in-demand economist. He reckons he is getting about four hours’ sleep a night. Last week he was in Budapest, London, Madrid and New York. Next week he will address Congress in Washington. Do not expect any good news.

Contacted in Madrid on Friday, Roubini said the world economy was “at a breaking point”. He believes the stock markets are now “essentially in free fall” and “we are reaching the point of sheer panic”.

For all his recent predictive success, his critics still urge calm. They charge he is a professional doom-monger who was banging on about recession for years as the economy boomed. Roubini is stung by such charges, dismissing them as “pathetic”.

He takes no pleasure in bad news, he says, but he makes his standpoint clear: “Frankly I was right.” A combative, complex man, he is fond of the word “frankly”, which may be appropriate for someone so used to delivering bad news.

Born in Istanbul 49 years ago, he comes from a family of Iranian Jews. They moved to Tehran, then to Tel Aviv and finally to Italy, where he grew up and attended college, graduating summa cum laude in economics from Bocconi University before taking a PhD in international economics at Harvard.

Fluent in English, Italian, Hebrew, and Persian, Roubini has one of those “international man of mystery” accents: think Henry Kissinger without the bonhomie. Single, he lives in a loft in Manhattan’s trendy Tribeca, an area popularised by Robert De Niro, and collects contemporary art.

Despite his slightly mad-professor look, he is at pains to make clear he is normal. “I’m not a geek,” said Roubini, who sounds rather concerned that people might think he is. “I mean it frankly. I’m not a geek.”

He is, however, ferociously bright. When he left Harvard, he moved quickly, holding various positions at the Treasury department, rising to become an economic adviser to Bill Clinton in the late 1990s. Then his profile seemed to plateau. His doubts about the economic outlook seemed out of tune with the times, especially when a few years ago he began predicting a meltdown in the financial markets through his blog, hosted on RGEmonitor. com, the website of his advisory company.

But it was a meeting of the International Monetary Fund (IMF) in September 2006 that earned him his nickname Dr Doom.

Roubini told an audience of fellow economists that a generational crisis was coming. A once-in-a-lifetime housing bust would lay waste to the US economy as oil prices soared, consumers stopped shopping and the country went into a deep recession.

The collapse of the mortgage market would trigger a global meltdown, as trillions of dollars of mortgage-backed securities unravelled. The shockwaves would destroy banks and other big financial institutions such as Fannie Mae and Freddie Mac, America’s largest home loan lenders.

“I think perhaps we will need a stiff drink after that,” the moderator said. Members of the audience laughed.

Economics is not called the dismal science for nothing. While the public might be impressed by Nostradamus-like predictions, economists want figures and equations. Anirvan Banerji, economist with the New York-based Economic Cycle Research Institute, summed up the feeling of many of those at the IMF meeting when he delivered his response to Roubini’s talk.

Banerji questioned Roubini’s assumptions, said they were not based on mathematical models and dismissed his hunches as those of a Cassandra. At first, indeed, it seemed Roubini was wrong. Meltdown did not happen. Even by the end of 2007, the financial and economic outlook was grim but not disastrous.

Then, in February 2008, Roubini posted an entry on his blog headlined: “The rising risk of a systemic financial meltdown: the twelve steps to financial disaster”.

It detailed how the housing market collapse would lead to huge losses for the financial system, particularly in the vehicles used to securitise loans. It warned that “ a national bank” might go bust, and that, as trouble deepened, investment banks and hedge funds might collapse.

Even Roubini was taken aback at how quickly this scenario unfolded. The following month the US investment bank Bear Stearns went under. Since then, the pace and scale of the disaster has accelerated and, as Roubini predicted, the banking sector has been destroyed, Freddie and Fannie have collapsed, stock markets have gone mad and the economy has entered a frightening recession.

Roubini says he was able to predict the catastrophe so accurately because of his “holistic” approach to the crisis and his ability to work outside traditional economic disciplines. A long-time student of financial crises, he looked at the history and politics of past crises as well as the economic models.

“These crises don’t come out of nowhere,” he said. “Usually they arrive because of a systematic increase in a variety of asset and credit bubbles, macro-economic policies and other vulnerabilities. If you combine them, you may not get the timing right but you get an indication that you are closer to a tipping point.”

Others who claimed the economy would escape a recession had been swept up in “a critical euphoria and mania, an irrational exuberance”, he said. And many financial pundits, he believes, were just talking up their own vested interests. “I might be right or wrong, but I have never traded, bought or sold a single security in my life. I am trying to be as objective as I can.”

What does his objectivity tell him now? No end is yet in sight to the crisis.

“Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom. They said it after Bear Stearns, after Fannie and Freddie, after AIG [the giant US insurer that had to be rescued], and after [the $700 billion bailout plan]. Each time they have called the bottom, and the bottom has not been reached.”

Across the world, governments have taken more and more aggressive actions to stop the panic. However, Roubini believes investors appear to have lost confidence in governments’ ability to sort out the mess.

The announcement of the US government’s $700 billion bailout, Gordon Brown’s grand bank rescue plan and the coordinated response of governments around the world has done little to calm the situation. “It’s been a slaughter, day after day after day,” said Roubini. “Markets are dysfunctional; they are totally unhinged.” Economic fundamentals no longer apply, he believes.

“Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to be allowed to fail, even that has not helped. We are reaching a breaking point, frankly.”

He believes governments will have to come up with an even bigger international rescue, and that the US is facing “multi-year economic stagnation”.

Given such cataclysmic talk, some experts fear his new-found influence may be a bad thing in such troubled times. One senior Wall Street figure said: “He is clearly very bright and thoughtful when he is not shooting from the hip.”

He said he found some of Roubini’s comments “slapdash and silly”. “Sometimes the rigour of his analysis seems to be missing,” he said.

Banerji still has problems with Roubini’s prescient IMF speech. “He has been very accurate in terms of what would happen,” he said. But Roubini was predicting an “imminent” recession by the start of 2007 and he was wrong. “He hurt his credibility by being so pessimistic long before it was appropriate.”

Banerji said on average the US economy had grown for five years before hitting a bad patch. “Roubini started predicting a recession four years ago and saying it was imminent. He kept changing his justification: first the trade deficit, the current account deficit, then the oil price spike, then the housing downturn and so on. But the recession actually did not arrive,” he said.

“If you are an investor or a businessman and you took him seriously four years ago, what on earth would happen to you? You would be in a foetal position for years. This is why the timing is critical. It’s not enough to know what will happen in some point in the distant future.”

Roubini says the argument about content and timing is irrelevant. “People who have been totally blinded and wrong accusing me of getting the timing wrong, it’s just a joke,” he said. “It’s a bit pathetic, frankly. I was not making generic statements. I have made very specific predictions and I have been right all along.” Maybe so, but he does not sound too happy about it, frankly.



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Read Comments (24)  —  Post Yours »

1

 Oct 26, 2008 at 07:24 PM jay Says:

Why isn't he giving ideas to stop the meltdown or to control it??? Its no fun to be negative but its cool to lead to a positive direction...
Let him bring some of he knowledge and brilliance and make it better.

2

 Oct 26, 2008 at 07:46 PM Anonymous Says:

I wonder what Wall Street's real and original "Dr. Doom", Henry Kauffman (he called the 1987 crash correctly) has to say?

4

 Oct 26, 2008 at 08:13 PM murray Says:

Who of the 2 candidates does he see as better to fix things up, economically speaking ( I bet "none of the above" ).

5

 Oct 26, 2008 at 08:19 PM Anonymous Says:

even a broken clock is right twice a day

6

 Oct 26, 2008 at 08:28 PM Anonymous Says:

Achrei Mos- Kedoshim- Emor, vd"l

7

 Oct 26, 2008 at 08:28 PM Anonymous Says:

#5 got it right!

8

 Oct 26, 2008 at 09:57 PM mechelpipik Says:

C'mon guys the world is in URGENT need of pidyon shevoyim. HELP!!!

9

 Oct 26, 2008 at 09:25 PM Abraham Stubenhaus Says:

Oh golly and gosh, I'm so scared of this great, fantastic genius, who is so wise and brilliant and intelligen

10

 Oct 26, 2008 at 09:59 PM Anonymous Says:

Shame he's a jew, now anti semitism???....

11

 Oct 26, 2008 at 09:15 PM Anonymous Says:

im moving to israel.

12

 Oct 26, 2008 at 08:43 PM Anonymous Says:

The economy is falling apart because people are afraid beacuase McCain is getting closer to Obama in the polls.

13

 Oct 26, 2008 at 10:16 PM Use Your Head Says:

Why do people have a hard time admitting that this guy is right, at least this time? He predicted this, and it occurred much the way he said it would.

14

 Oct 26, 2008 at 10:47 PM dummy Says:

Reply to #13  
Use Your Head Says:

Why do people have a hard time admitting that this guy is right, at least this time? He predicted this, and it occurred much the way he said it would.

if you keep on saying it will rain , one day you will be correct , this guy has been saying since 2007 that it will rain , it took almost 2 years for him to be correct , like # 5 says , a broken watch is also correct 2 times a day

15

 Oct 26, 2008 at 11:09 PM Anonymous Says:

The Zohar says there will be an economic collapse that will bring a lot of anti-Jewish reaction and there will be something like a nuclear event in one of the most important cities. (Moshiach can come before and avert this.)

16

 Oct 26, 2008 at 11:32 PM Anonymous Says:

Also a jew ha!! Who els is a jew. ?? Come on wow he said something we all know that a dien who says to every think NO is not a genus the one who says YES is come on guys!!!

17

 Oct 26, 2008 at 11:46 PM Use Your Head Says:

Reply to #14  
dummy Says:

if you keep on saying it will rain , one day you will be correct , this guy has been saying since 2007 that it will rain , it took almost 2 years for him to be correct , like # 5 says , a broken watch is also correct 2 times a day

Yes, but your moshol is invalid. If you keep on saying it will rain soon, and everyone else says it will not, and then it does rain fairly soon, you were right, and everyone else was wrong. Wouldn't you agree?

18

 Oct 26, 2008 at 11:42 PM Anonymous Says:

Reply to #15  
Anonymous Says:

The Zohar says there will be an economic collapse that will bring a lot of anti-Jewish reaction and there will be something like a nuclear event in one of the most important cities. (Moshiach can come before and avert this.)

it all depends if "zochu" or "lo zochu". if we do tshuva first, moshiach can come and save us before the predictions (that are already happening) continue to take place. one by one the nevuos are unfolding. when will we make it stop?

19

 Oct 27, 2008 at 12:27 AM Let's hope it is Moshiach Says:

Reply to #18  
Anonymous Says:

it all depends if "zochu" or "lo zochu". if we do tshuva first, moshiach can come and save us before the predictions (that are already happening) continue to take place. one by one the nevuos are unfolding. when will we make it stop?

I am not a Lubavitcher but the medrash says Moshiach will come in Motzoei Shviis (which it is) and another medrash says the son of Dovid (Moshiach) won't come until not a penny is left in the wallet (kis). Kis could also mean in the stored away money or savings accounts.

Hashem Yisborach has made astounding events in the world in general and in the US and Israel in particular. Any prior false basis of hope such as the IDF, the good will of America to help Israel, our solid investments in strong financial institutions and other sources of trust have lost their credibility. Hashem is forcing us to have bitachon in him, as we should.

May we all strengthen our bitachon and increase our Torah learning and mitzvos to merit Yeshuas Hashem and yeshuas klal Yisroel.

20

 Oct 27, 2008 at 10:17 AM Anonymous Says:

Reply to #19  
Let's hope it is Moshiach Says:

I am not a Lubavitcher but the medrash says Moshiach will come in Motzoei Shviis (which it is) and another medrash says the son of Dovid (Moshiach) won't come until not a penny is left in the wallet (kis). Kis could also mean in the stored away money or savings accounts.

Hashem Yisborach has made astounding events in the world in general and in the US and Israel in particular. Any prior false basis of hope such as the IDF, the good will of America to help Israel, our solid investments in strong financial institutions and other sources of trust have lost their credibility. Hashem is forcing us to have bitachon in him, as we should.

May we all strengthen our bitachon and increase our Torah learning and mitzvos to merit Yeshuas Hashem and yeshuas klal Yisroel.

are you saying that if moshiach doesnt come this year we shouldnt be saying ani mamin for another 7 years? youre bieng ridiculious.

21

 Oct 27, 2008 at 11:45 AM Let's hope that it's Moshiach Says:

Reply to #20  
Anonymous Says:

are you saying that if moshiach doesnt come this year we shouldnt be saying ani mamin for another 7 years? youre bieng ridiculious.

How did you ever distort my words and meaning into this nonsense that you are saying?

Of course we are maamin in Hashem under all circumstances. However, if there are simanim that are presented by Chazal for the coming of Moshiach and unusual events are happening in the world, we have a right to interpret them as possible fulfillment of these Chazal. That's why I said let's HOPE that it is Moshiach. The nafke mina is that we should strengthen ourselves in Torah and Mitzvos with extra chizuk due to the current situation.

22

 Oct 27, 2008 at 02:07 PM Anonymous Says:

The more we try to fix this Financial "Crisis" and as much as we would like to se one person or the other in the White House, The more we realize that ultimately G-d is still in charge! Mentch Tracht Got Lacht!

23

 Oct 27, 2008 at 02:03 PM Anonymous Says:

anachnu mamimnim bnei maminim rak avinu shebashamaim

24

 Oct 27, 2008 at 05:32 PM Anonymous Says:

Hashem giveth and Hashem taketh away.

25

 Oct 28, 2008 at 02:27 PM Anonymous Says:

At Shetechaleh Pruta min Hashik. Hashik means the "Street".
Wall Street?

26

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