Nouriel Roubini, otherwise known as "Dr. Doom", is an economics professor at New York University. He was given the moniker of "Dr. Doom" way back in the relatively salad days of September, 2006, when he accurately predicted our current, disastrous economic situation.
Today, he's cautiously optimistic about the Geithner plan. Before we go there, lets take a quick look at just how prescient Mr... er, "Dr. Doom" was, below the flip.
It was almost exactly two years before all hell broke loose when Nouriel Roubini earned his nickname. I'll let the New York Times tell it:
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.
The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer.
As we're all now painfully aware, Roubini was obviously right.
But yesterday, "Dr. Doom" was sounding just a wee bit less bearish in an article he co-wrote with Mathew Richardson in the New York Daily News entitled Give Credit to Timothy Geithner's new Toxic Asset Plan:
For the economy to be viable, the financial system must be healthy. For this to occur, the system needs to be cleansed of its poorly performing loans and so-called toxic securities backed by loans. This way, once creditworthy institutions and individuals come to the market looking for capital to borrow, financial firms will be in a position to lend them money.
Secretary Timothy Geithner's new toxic asset plan is a serious step in the right direction in that it creates a public-private partnership to buy the troubled assets of financial firms - in other words, to do the necessary cleansing. Up until now, with all the government bailouts, the financial system has been barely treading water. With this plan, it will still be a hard swim, but, at least, there is a path to shore.
"A path to the shore". After the last six months, that doesn't sound so bad. What lies ahead will not be all wine and roses, to be sure but one of the guys who was smart enough to see this coming (like Krugman) thinks the Geithner plan just might work (unlike Krugman):
A lot of ifs, but if indeed successful, the plan accomplishes mission No. 1, namely the removal of the bad assets from banks' balance sheets. Even if banks wanted to do this on their own, they can't because the market for these illiquid assets has dried up.
This small bit of optimism from a "Perma-Bear" like Roubini could easily go south, of course - particularly if the economy takes a turn and somehow gets worse. I'm certainly no economist, but amidst all the gloom and (Dr.) doom that's going on out there, I thought I'd run a somewhat-positive diary up the flagpole for the Geithner/Obama naysayers to shoot down. Please don't shoot the messenger. I'm not saying Roubini is right; that remains to be seen. But like Paul Krugman, he certainly was right a couple of years ago about the mess we find ourselves in, now.
And just think: IF this plan does work... think how many Republican's heads will explode!
And on that thought... Have a happy Thursday!
Oh, I almost forgot!
BOO!!