Nouriel Roubini : “Dr Doom” or Economist at his best

Nouriel Roubini is a professor at New York University’s Stern School of Business, and head of Roubini Global Economics.

Read on for the perfect economic predictions he made :
Just after the sub-prime crisis and before the current global financial crisis emerged or any one foresaw / predicted it he in August 2006, wrote, “The scariest thing is that the gambling-for-redemption behavior…are not the exception in the mortgage industry; they are instead the norm. …If this kind of behavior is — as likely — the norm, the coming housing bust may lead to a more severe financial and banking crisis than the S&L crisis of the 1980s. The recent increased financial problems of…sub-prime lending institutions may thus be the proverbial canary in the mine — or tip of the iceberg — and signal the more severe financial distress that many housing lenders will face when the current housing slump turns into a broader and uglier housing bust that will be associated with a broader economic recession.”

Roubini went on to say, in 2006, “One cannot even exclude systemic risk consequences if the housing bust combined with a recession leads to a bust of the mortgage-backed securities market and triggers severe losses for the two huge GSEs (government-sponsored enterprises), Fannie Mae and Freddie Mac.” Talk about prescience. To add on he had also predicted the failure of Bear Stearns, Its amazing but he also predicted that Fannie Mae and Freddie Mac will eventually bite the dust, and today they are nationalized.
The story doesn’t end here , read on , a bit earlier, in July, Roubini had said that Lehman Brothers would need a buyer: it soon did, but didn’t find one, and is now bankrupt. He didn’t stop there. He predicted in July that Merrill Lynch, Goldman Sachs and Morgan Stanley would also not survive as independent firms. Lo and behold, Merrill Lynch is now set to be owned by Bank of America.

Surprised , yes we all should be , the crux of the matter is that when Roubini talks, people should listen.

The beauty of Roubini’s predictions is that they are based on crystal clear economic analysis. He had argued that the independent broker dealer model (epitomized by the former big four firms) is fundamentally flawed. These firms use the same business model as banks: they borrow short and lend long. But they borrow on even shorter time frames, use more leverage, and do not have explicit government backing (as banks have had since the Great Depression) and therefore the liquidity crunch.

To conclude i would leave it to you , to decide whether Nouriel Roubini is “Dr Doom” or Economist at his best. Your comments are welcome.