Dr. Roubini speaks (student loan, wholesale, accounting, real estate)

[Wild Style]

I really enjoy reading from Professor Roubini from NYU Stern School of business. He has been dead on with his predictions from day one. There is a recent interview with him that was posted on a local blog I visit.

Here is a quote from the article:

Barron: So far, we have seen no recession in the technical sense: two consecutive quarters of negative growth in real GDP. Why not?

Roubini: The definition of a recession isn't only two consecutive quarters of negative growth. The NBER (National Bureau of Economic Research) puts a lot of emphasis on things like employment, and employment has already fallen for seven months in a row. It also emphasizes income and retail and wholesale sales. Many of these things are declining.

if you have time its a great read. If you understand this entire economic mess this will be more of a refresher course for others this will clear up a lot of misinformation.

link

[baystater]

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 [billions] of dollars outstanding in home-equity loans that eventually could be worth zero, too.

Yeah. I'm waiting for that shoe drop. Oh boy.

How do you think Federal Reserve Chairman Ben Bernanke has handled the crisis so far?

The Fed's performance has been poor. More than a year ago the Fed said the housing slump would end, but it hasn't. They kept repeating this was a subprime-debt problem only, whereas the problems of excessive credit involve subprime, near-prime, prime, commercial real estate, credit cards, auto loans, student loans, home-equity loans, leveraged loans, muni bonds, corporate loans -- you name it.

I actually heard it come out of Paulson's mouth alot more than Bernake. While I think Bernake is towing the government line. I put more of a poor performance on Paulson head. I don't think he got a clue to what's going on.

The Fed's other mistake was to believe the collapse of the housing market would have no effect on the rest of the economy, when housing accounted for a third of all job creation in the past few years. When the proverbial stuff started to hit the fan last summer, the Fed went into aggressive-easing mode. But it has always been kind of catching up.

God. How many people bought that load of crap a year or so ago. I remember hearing that type of talk all over the finical networks. But anyone with half a brain could figure out that there was no way a major slump in housing would not effect the greater economy. Ya know. I'm really interested on the actual amount of jobs we have lost in residential construction. You know the numbers aren't right because a fair share of the worker in the house building sectors we're illegals keep off the books.


[quote]

Now the regulators are attempting to make up for lost time. What do you think of their efforts?

The paradox is they're going to the opposite pole. They are overregulating, bailing out troubled participants and intervening in every market. The Securities and Exchange Commission has accused others of trying to manipulate stocks, but the government itself is now the manipulator. The regulators should investigate themselves for bailing out Fannie Mae (FNM) and Freddie Mac (FRE), the creditors of Bear Stearns and the financial system with new lending facilities. They have swapped U.S. Treasury bonds for toxic securities. It is privatizing the gains and profits, and socializing the losses, as usual. This is socialism for Wall Street and the rich.

The last sentence is very interesting I didn't look at that the situation like that before. But actually he spot on about it. Basically you make the profits a private affair but when trouble hits you pawn it off on everyone. Not just a bailout but a socialistic approach to the matter.
Socialism for wall street........Hmmmmm....a new catch phase perhaps???????

So the government should have let Bear Stearns fail, not to mention Fannie and Freddie?

If you let Bear Stearns fail you can have a run on the entire banking system. But there are ways to manage Bear or Fannie and Freddie in a fairer way. If public money is to be put at stake, first all the shareholders of these companies have to be wiped out. Management has to be wiped out, and the creditors of Bear should have taken a hit. Why did the Fed buy $29 billion of the most toxic securities, and essentially bail out JPMorgan Chase (JPM), which bought Bear Stearns?

Because JPMorgan was a counter-party?

Exactly. The government bailed out everyone. Even the unsecured creditors of Fannie and Freddie should have taken a hit. Sometimes it is necessary to use public money to rescue institutions, but you do it in a way in which you're not bailing out those who made the mistakes. In each one of these episodes the government bailed out the shareholders, the bondholders and to some degree, management.

Yep. We need to save the greedy and the stupid. Because that should keep us from repeating the same mistake over again.

What recourse will the taxpayer have?

The taxpayer's bill is going to be huge. I estimate this financial crisis will lead to credit losses of at least $1 trillion and most likely closer to $2 trillion. When I made this analysis in February everybody thought I was a lunatic. But a few weeks later the International Monetary Fund came out with an estimate of $945 billion, Goldman Sachs (GS) estimated $1.1 trillion and UBS (UBS) $1 trillion. Hedge-fund manager John Paulson recently estimated the losses would be $1.3 trillion, and late last month Bridgewater Associates came up with an estimate of $1.6 trillion. So, at this point $1 trillion isn't a ceiling, it's a floor. And the banks, as I've said, have written down only about $300 billion of subprime debt.

Screwed again by our business leaders, politicians, and or fat and lazy fellow Americans with their irresponsibility and short sightedness.

Does any one still believe out there that we won't get our taxes raised by who ever going to take the reigns of power (president) next year?

Further Are there any of you guys on the forum still thinking a tax cut will actually help us at this point?

[Wild Style]

bay

Roubini was also the one who called NYC real estate troubles back a few years ago. There is a video on youtube of him, some interviewer and some goofy economist standing in Manhattan discussing what they think is going to happen. The goofy economist starts in with the "this is NYC, it will never fail in R.E.". I chuckled at that part because he must have forgotten about the whole S&L backed real estate bust that happened in the 80s/90s. Then Roubini comes in with the facts, and sure enough time is proving mr Roubini correct. He is definitely one of my favorite guys, him Schiff and Jenzen.

As for what people still think or don't think. don't worry about that, for a lot of people it hasn't sunk in yet. It is like being in a plane and seeing two trains that are 100 miles apart about to crash. Some will be able to fix their eyes on the tragedy and know what is about to happen. The others will be taking in so much info that their eyes and minds will not be in sync, leading to confusion. They will not know whats about to happen until the actual point of impact. That is where we are at right now. But next year, well next year, thats when we will see the real point of impact. These bank failures, this introduction to inflation, fluctuating gas prices, this is just a warm up lap.

[baystater]

Originally Posted by Wild Style

bay

Roubini was also the one who called NYC real estate troubles back a few years ago. There is a video on youtube of him, some interviewer and some goofy economist standing in Manhattan discussing what they think is going to happen. The goofy economist starts in with the "this is NYC, it will never fail in R.E.". I chuckled at that part because he must have forgotten about the whole S&L backed real estate bust that happened in the 80s/90s. Then Roubini comes in with the facts, and sure enough time is proving mr Roubini correct. He is definitely one of my favorite guys, him Schiff and Jenzen.

As for what people still think or don't think. don't worry about that, for a lot of people it hasn't sunk in yet. It is like being in a plane and seeing two trains that are 100 miles apart about to crash. Some will be able to fix their eyes on the tragedy and know what is about to happen. The others will be taking in so much info that their eyes and minds will not be in sync, leading to confusion. They will not know whats about to happen until the actual point of impact. That is where we are at right now. But next year, well next year, thats when we will see the real point of impact. These bank failures, this introduction to inflation, fluctuating gas prices, this is just a warm up lap.

Well I'll say this. I'm going to be very, very, very interested in what Christmas is going to look like this year. I know it sound odd, but to me, that the season when you can kind of tell if things have truly sunk in to the average Joe/Jane out there. We will see.