Interview with Tech Ticker: Risk of a Systemic Financial Crisis and a Severe Recession is Rising

Author: Nouriel Roubini  ·  October 8th, 2008  ·  253955http%3A%2F%2Fwww.economonitor.com%2Fnouriel%2F2008%2F10%2F08%2Finterview-with-tech-ticker-risk-of-a-systemic-financial-crisis-and-a-severe-recession-is-rising%2FInterview+with+Tech+Ticker%3A+Risk+of+a+Systemic+Financial+Crisis+and+a+Severe+Recession+is+Rising2008-10-08+22%3A59%3A38Nouriel+Roubinihttp%3A%2F%2Fwww.economonitor.com%2Fnouriel%2F2008%2F10%2F08%2Finterview-with-tech-ticker-risk-of-a-systemic-financial-crisis-and-a-severe-recession-is-rising%2F › Share This Print

Wednesday I was on Yahoo’s Finance Tech Ticker and here is the video and the interview in several segments:

No Quick Fix: Roubini Forecasts Worsening Economy, 2-Year Recession (click for video)

The dramatic meltdown of the financial markets has shifted focus from the real economy, which our guest, RGE Monitor chairman Nouriel Roubini, says is where the downturn is truly being felt. The $700 billion bailout and today’s global rate cuts may have helped avert a complete financial collapse, the NYU Stern School economist notes. But the recession — which he says began in Q1 of this year — is deepening and will last into early 2010.

Retail and personal spending fell sharply over the summer, marking a drop in consumption for the first time since 1991 — and the Q3 numbers are only going to be worse, says Roubini. Moreover, corporate capital spending is down, which will translate into even fewer jobs in the coming months.

Is Roubini simply being too bearish? “I worry that it’ll be worse than I expected,” he says in the accompanying video, in which he predicts a slow, possibly L-shaped recovery a la Japan.

Fire Paulson, Bernanke, and Spend Like Mad: Advice for the Next President (click for video)

Other than John McCain’s proposal to buy bad mortgages, last night’s presidential debate contained scant few new ideas for dealing with the worsening crisis in housing and the financial markets.

Both candidates need to start moving beyond their stump speeches — and quickly, says RGE Monitor chairman Nouriel Roubini, whose forecasts about the credit cycle to date have been frighteningly accurate.

In the accompanying video, the NYU economics professor ticks off a number of suggestions for whoever wins the election:

• Replace Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke. “We need a clean slate to restore confidence,” he says, suggesting market participants have lost faith in current regulators.
• Start a $300 billion government works program focused on repairing and expanding our infrastructure. Yes, a new New Deal.
• Create a blanket guarantee for all bank deposits. Even with the FDIC raising its insurance limit to $250,000, there’s still $2 trillion of uninsured assets in American banks and that money is moving overseas to places like Ireland, which have granted blanket guarantees.
• Revise the $700 billion bailout plan (or TARP) so that it just doesn’t buy toxic mortgage securities but directly helps recapitalize the banks.

For the record, Roubini isn’t officially advising any policymakers right now. But he is attending the IMF meeting this weekend and almost certainly will be giving “informal” advice to any and all takers.

Roubini: Rate Cuts Reduce Crash Risk, But Dow 7,000 Likely ‘Sometime Next Year’ (click for video)

Today’s global rate cuts have reduced the risk of a market crash, but won’t resolve the underlying crisis, says NYU economist Nouriel Roubini of RGE Monitor.

But the financial market crisis has unfolded even quicker than Roubini expected (which is saying something), and the economist now thinks the Dow and S&P will suffer 50% declines from last October’s peak vs. 40% previously.

In other words, the Dow is going to 7,000, but over the course of months vs. days if Roubini is right, as — unfortunately for bulls — he mostly has been for the past two years.

“The policy response is going to become more aggressive [but] a steady flow of bad financial and macro economic news is going to push down equity markets,” he says, forecasting a real bottom won’t be hit until “sometime next year.”

Because of growing slack in the global economy, Roubini says deflation is going to become a much bigger threat in the next six months vs. inflation. In such an environment, cash, Treasuries and gold are the only safe bets he says — provided your holdings are within the FDIC’s new $250,000 insurance cap.

Tech Ticker (Oct 10, 2008): Another Big U.S. Bank Failure Could Happen, Warns Roubini ( click for video)