If you're wondering where the Progressive Blogosphere (i.e.: Jerome a Paris, Bonddad, Stoneleigh and Ilargi over at
The Automatic Earth, and even Paul Krugman) gets most of their greatest talking points, at least when it comes to
our economy, look no further than a former Clinton administration international economics advisor, and current NYU Stern School of Business Professor
Nouriel Roubini. "Roubini," as Ilargi refers to him many times a month in the most reverent of tones, was at first classified as little more than a whacko by the conservative right a few years back when he started detailing our current financial crisis as early as 2004. The rightwing's skepticism of Roubini has recently vaporized, because his forecasts have proven to be downright eerily accurate over the past year. As for where we're at today, he predicted Lehman Brothers' demise early in 2008 (see link below), and he's said the following:
"He does not believe that the United States is entering the next Great Depression, but has said that he believes it will be worst recession since then." (See Wikipedia link, above, for quote attribution. Note, this was before Roubini revised his projections downward, see below.)
In the past year, and in light of developments within the U.S. economy during this time under the Bush Administration,
Roubini has gone on record revising his projections downward, for the worse, since making the statement attributed to him mentioned above, culminating in much more dire comments made last night on Bloomberg TV (see below) and earlier this year in
Investment News Magazine:
Last night on Bloomberg TV:
Roubini: "The U.S. is at the start of a very severe bank crisis."
Bloomberg Interviewer: "But is there a light at the end of the tunnel?"
Roubini: "Yes, and there's a train behind the light."
Earlier this year in Investment News Magazine:
"Even if only half of the 16 million households were to walk away, that alone could lead to losses for the financial system of $1 trillion. Even a 20% drop in home values may imply losses of $1 trillion that are not priced into the market today. So that's the floor. Again, it could be higher -- as much as $2 trillion -- if prices fall 30% and more people walk. "
During the past month, Roubini revised his projected drop in U.S. home values to 30%.
Last weekend it was the U.S. government's takeover of Fannie Mae and Freddie Mac, essentially guaranteeing the bankruptcy of the U.S. government for generations to come. (This is not an exaggeration. Despite assurances from the spinmasters on our federal payroll, who were busy quoting year-old, obsolete numbers of a "potential cost" to taxpayers of $25 billion+/-, the fact is the takeover of these two Government Sponsored Enterprises, "GSE's," will be at least $300 billion--and that's if we're very lucky--and that's on top of a U.S. government deficit of more than $400 billion, for 2008, alone; which is on top of a negative balance already well over one trillion dollars prior to 2008. If we survive this, your grandchildren will be paying off this debt, without question. Looked at another way, the interest on this debt, alone--prior to last week's announced nationalization of the U.S. housing market--will eat up somewhere in the neighborhood of half of the federal budget by 2012.)
Now, this weekend, we awaken to the reality that Lehman Brothers, another of the five major U.S. broker-dealers on Wall Street, has formally tanked. Once again, as they did earlier in the year when Bear Stearns went under, the U.S. media will attempt to portray it as a "buyout," when the truth is that Treasury Secretary Paulson and Fed Chairman Ben Bernanke, along with his other cronies at the Federal Reserve, have worked feverishly over the past few days and through this weekend to simply make it appear that way.
The Fed, Treasury and financial system ``are in a horrible situation,'' said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico, which oversees about $46 billion. ``You have investors at large firms like Lehman saying: Why can't you do it again?''
One problem hobbling regulators is that they don't have a transparent process for dealing with investment banks in the same way that the Federal Deposit Insurance Corp. does for handling troubled commercial banks. That leaves Fed and Treasury officials with emergency decisions that set new precedents and change market incentives with every bailout or failure.
The big policy question is, do you need to preserve investment banks in the public interest?'' said Joseph Mason, a Louisiana State University finance professor who served in the bank-research division of the Office of the Comptroller of the Currency from 1995 to 1998. ``We are at the inflection point,'' he said. ``Failures keep getting bigger and bigger.''
Mr. Roubini's 12-point outlook, published in 2006, forecasted, among other things, that:
--housing prices will plummet 20% to 30% from their peak,
--subprime mortgage losses will exceed $300 billion
--at least one of the top five investment (broker-dealer) firms in the U.S. would go under (the top five, at the time, being: Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs)
--credit losses will spread outside the subprime arena to credit cards
--monoline companies, which insure against defaults on certain municipal bonds and mortgage-related securities, to be downgraded, leading to more write-downs
--a meltdown will occur in commercial real estate
--there will be a wave of defaults on corporate debt and credit default swaps
--we'll see a sharp drop in liquidity
--this sharp drop in liquidity could lead to fire sales of assets.
All of these things either have already happened or they are happening, and the results are even more dire than Roubini predicted more than two years ago.
Some of our nation's remaining largest financial services institutions, including Washington Mutual, Wachovia and Merrill Lynch are next in line for the dumper--the order in which they go is merely a matter of the calendar. And, obituaries are already being written for major regional banks such as National City and Fifth-Third Corporation.
A review of Roubini's comments over the past year spells it out very clearly (just read all of the links mentioned in this diary and add up the liabilities): The U.S. taxpayer, as of this writing, with the takeover of Fannie Mae and Freddie Mac, is on the hook for $2 trillion more than they were at the beginning of the year. And, according to Roubini, last night on Bloomberg, we're just getting started!
For Roubini to predict that things are going to be worse than even he envisioned two years ago, up to and including a possible "catastrophic meltdown of the U.S. financial markets," is not lost upon those that were laughing at him just two years ago.
Yes, Obama's November victory may be summed up in one word: Roubini. But, ironically, his victory will be gained based upon the realization by the public that they've been lied to and misled by the current administration and all those that supported the gross incompetence of it--and it is an incompetence for which our grandchildren will be paying the price for decades to come.
Also from last night's Bloomberg Report:
Obama plans to stick to the basics.
That means after a week of media attention to, as Obama put it yesterday, "polls, scandals, gaffes and attacks,'' the candidate will keep pounding on the campaign's three big themes: the economy, the economy and the economy. "
To survive over the next few years we all must embrace a hope for our future as a country perhaps like never before. The truth--which is just coming out due to months and years of obfuscation by the GOP, the MSM and the financial sector as a whole--demands no less than that of us now.