Yesterday I participated in a Web Video Cast hosted by Nouriel Roubini, Barry Ritholtz and Zack Gast.
This diary title was an exact quote given by Mr. Roubini regarding the US Economy. Please follow below for some background on each of these men and my notes on the conversation.
Nouriel Roubini is Professor of Economics at the Stern School of Business, New York University. He is also Co-Founder and Chairman of Roubini Global Economics LLC, a web-based economic and geostrategic information service and economic consultancy. Bio can be found here:
http://www.theglobalist.com/...
I subscribed to RGE some time ago and have been impressed and frightened by not only what he has to say today, but that around two years ago, he saw this coming and tried to ring the alarm bells.
Barry Ritholtz is Chief Market Strategist for an institutional research firm, and the Chief Economics Commentator for an asset management firm. Bio can be found here:
http://bigpicture.typepad.com/
Zach Gast heads financial sector research for RiskMetrics Group’s Financial Research and Analysis unit. Gast was the Financial Sector Research Team Leader at the Center for Financial Research and Analysis (CFRA) until its recent acquisition by RiskMetrics Group. A little more info can be found on RiskMetrics website:
http://www.riskmetrics.com/...
Now for my recollections of the event. I believed that we would be receiving a transcript but as of now I have not. Please understand that I believe my notes are totally accurate but they are notes and not transcripts. If I do receive one, I will post here for all to see. The Webcast was recorded and all who participated had to agree to this, so I see no problem posting an exact transcript if it comes.
That said, the meeting began with Roubini first. He layed out his outlook for our and other economies and his thoughts on the bailout...er...rescue plan. He began with a few predictions.
- The House will pass the rescue plan. Right On on that one.
- He also predicted that the Fed will cut rates again.
- He predicts a severe recession in the 1.5 - 2 year timeframe
- He believes that Europe is in greater trouble than we are. Their banks are up to 60% leveraged as compared to US, around 30%. They could be in for a bigger hit than we are. Shit.
It was at this point that he uttered the quote 'we are one accident away from a severe systemic meltdown' and gave some reasons why our economy is on the brink:
-the last few weeks have just made things worse
-the interbank market is totally frozen
-there is panic and mistrust among institutions
-there is already a silent run on banks taking place
-US has $7 Trillion in total deposits but only $2 Trillion are insured
-No one can tell which institution is solvent and vice versa
-The beginning of the demise of the shadow banking system is underway
-the corporate credit environment is seizing even with a $600 Billion injection of cash by the Fed, previously
He has serious doubts about the rescue plan and he strongly suggests that the Fed institute a blanket guarantee on all bank deposits for 6 months. The increase from $100K to $250K does not even begin to cover what many large entities have on deposit and these entities are scrambling to withdraw. One (not named) attempted to remove (I think) $100 million from a US Bank and was told they would have to wait a week...bad sign.
He says the Fed MUST identify the banks in stress, capitalize them, and shut down the rest. Without capitalization they cannot survive. Simply buying bad assets will not adequately do this job. Not by a long shot.
Our economy is further stressed because our exports are now in trouble due to the value of the dollar actually rising, thereby making our products less attractive. Bad for any economic recovery.
The government needs to institute an HOMC for buying homes as was done during the Great Depression. Taxpayers actually made money by doing things this way and it should be done again.
On to Barry Ridholtz who was not quite so bearish as Roubini but don't start doing any cartwheels or happy dances just yet.
He predicts a 'fair' recession/depression rather than a severe one and since he's more concerned with the equity side of things, he focused there.
He only gave the rescue plan a 60% chance of passing so Roubini called this one.
He believes that oil prices will contract to possibly $68-$75 a barrel and while most might think that's a good thing it simply proves that business and personal consumption will be going way down. That does not speak well for how these businesses are doing if they contract that much.
His main problem with the rescue/bailout again is that it does nothing to capitalize the institutions in jeopardy and without that, they will continue to fail.
He is also quite worried about the bailout not addressing all the causes that got us here. If nothing else is done, in 3 to 4 years we'll be facing the same damn thing. This bailout saves the reckless players and does nothing to prevent them from rearing their ugly heads again (my words, his sentiment).
Zack Gast focused more on real estate and consumer credit. He said credit cards and consumer loans were already spiraling into much higher delinquency rates and when that happens, you cannot recover those balances. They are discharged by bankruptcy further stressing already stressed institutions. Even when the consumer loans are secured, say with autos, with a depressed credit situation, buyers will be hard to come by making the asset unsellable.
He also sees problems with commercial property due to the aggressive terms that they were structured with and with inflated property values. He does not believe this will be as bad as residential, but still another straw on that camel's back.
He firmly believes moving away from mark-to-market is a bad decision (I think the progressive Dems discussed this in their alternate bill.)
He is worried about Deposit Flight and echoed the call for blanket deposit guarantees. He also thinks the taking of equity warrants was a very net plus to the bailout and it will help some, but it's not enough. There must be an intervention of capital adequacy. Must. Must. Must.
Sorry I don't have more from Zack, but I started running out of steam with my note taking and was clinging to the hope that a transcript would come.
There were a few questions at the end...I'll try to paraphrase.
When asked what sectors may ride this economic crisis out well. CASH Mr. Ritholtz has his funds holding at 55% cash position right now. That is incredibly high, IMHO. Roubini is still even concerned about money market accounts which is why he pushed that the Fed should blanket cover all deposits including these. This sentiment was echoed by all.
And now, I saved the best for last. When asked which candidate had the best economic advisers to handle things...Ritholtz started with McCain. He named the two top advisers (I can't remember the names...but one I've seen running on the pundit parade...3 word name?) He thinks the two top guys are smart but then he mentioned the down economic ticket and specifically called out Phil Gramm, who he believes caused this mess in 1999 and has NO CONFIDENCE IN HIM.
He also mentioned Barack's top two: Buffet & Krugman -- EXCELLENT FOR BOTH.
I'm not trying to scare anyone but I am very concerned especially when these people could see further major drops yet to come in the market and their genuine concern for keeping homeowners whole. We simply have to get Barack elected because he will be the only one to institute the changes to regulations to make sure nothing like this ever happens again. I just hope the economy can hold on for another few months. We need to push the Fed to authorize the blanket deposit guarantee...and quickly...or I fear the behind the shadows run on banks will come out into the light.