Nouriel Roubini Should Win Nobel Prize

Update: Roubini Warns of Sovereign Debt Crisis

Roubini has a list of countries with aging populations that are facing debt crisis in the face of a lackluster economic recovery. Aging populations in Japan, US, and several European countries will make debt more difficult to pay off, leading to bond investor nervousness and fear.

Update: Roubini is warning on CNBC that stimulus being diminished will cause a problem with demand. This slowing of the economy can be mitigated by a cut in payroll taxes with a tax on the rich to make up for it. We need to do this. What are we waiting for? Are we waiting because the Tea Party would oppose it? They want more money in the hands of the rich rather than less, even if it is against their own personal best interest. But when 10 percent of the population controls 93 percent of the assets in the US, the time for Roubini's plan has come.

Nouriel Roubini Has Been Right All Along

Foreclosuregate no doubt is the capping of Roubini's predictions about the financial meltdown of the banks. He warned a long time ago that these banks would be in big trouble. Apparently foreclosuregate is the fulfillment of Roubini's predictions. And apparently the banksters are working overtime to stop this scandal from getting out of hand. Well, maybe had they never securitized a loan in the first place, they could have contained this scandal.

Important Update: Roubini has written an article with Richardson where he says that US bank loan losses projected are 2.5 to 3.6 trillion dollars. The banks have excess reserves of 830 billion. That is a DROP IN THE BUCKET. The road for the big banks is a dangerous one at best. See the WSJ link below entitled "We Can't Subsidize the Banks Forever".


Important Update: Nouriel Roubini and the IMF are predicting trillions of write offs and loan losses for the banks. Clearly the Stress Test does not address those losses. The Stress Test is only concerning Tier One assets, but the losses are compounding in the Tier Two assets and the Tier Three assets where there is no market.

Important Update: Nouriel Roubini has called Jim Cramer a buffoon for predicting 6 bull markets that turned out to be false bear market rallies. Roubini said that after Cramer took a beating at the hands of John Stewart, that he should just shut up, having no shame for not shutting up! Go Nouriel!

Important Update: Ben Bernanke has said that the government of the United States through the operation of the federal reserve bank does not have the authority to nationalize the international banks (Citibank, Bank of America, JP Morgan, Wells Fargo) in the way Roubini calls for. This usurpation of national sovereignty is a disgrace. Write your congressmen and women and tell them this is a national disgrace.

Roubini, professor of economics at the University of New York has been right about the credit crisis from the start. In the world of practical economics, the majority of economists have proven to be either paid shills or apologists for market bulls. Investors have been ripped apart and Roubini has been warning of this catastrophe all along.

From a practical perspective Dr Roubini deserves the nobel prize, and there is no economist more deserving. Most of the others have spent their time ignoring signals about economic trends and have hidden their heads in the sand.

Roubini's scenario of the future goes like this. Recession will last through 2009, and 2010/2011 will very likely be flat with no growth. It will feel like a recession. Roubini has been calling for the nationalization of the banks. The reason this is important is because if we do not nationalize the banks we are facing a lost decade just like Japan. I am fairly confident that the government of the United States will not take Roubini's advice. I am hoping that I am wrong.

You say, well we have already nationalized the banks. No, we have not. We have, as Ben Bernanke testified to the congress recently, a public/private partnership, where the public is putting up the funds and the taxpayer is getting screwed. I took editorial liberty here with Bernanke's testimony but I am calling it like it is..

In order to truly nationalize the banks, it is necessary to take them over and sell the assets like Bill Seidman did in the S & L crisis. Then when the banks are cleaned up they are put back into the private sector. Mr Seidman deserves an honorable mention as an economist because he, too, is calling for real nationalization.

As of now, we have a fascism, where the banks are raiding the treasury of the United States. While it is true that nationalization will hurt bondholders everywhere, and even my pension, the truth of the matter is that if we do not nationalize the banks we will have zombie banks (and shadow banking zombies like AIG) like they had in Japan. A zombie bank is a bank that remains private but cannot lend as their capital keeps falling as their loans continue to fail.

Update: Roubini on the Carry Trade

The carry trade was being operated by shorting the Yen or by borrowing against the Yen and using the profits to buy all kinds of assets and stronger currencies. This pushed the value of the Yen down and assets higher. But now, the dollar has become the whipping boy of the carry trade and the Federal Reserve Bank thinks that is just fine. While it is likely that this carry trade will unwind as the Fed has more bonds to sell than ever in history, the carry trade is like a giant casino, driving the price of stocks, oil, gas, copper, and sugar, etc to higher prices than is justified by fundamentals. This is a bubble that is being sanctioned by the Federal Reserve Bank. It is dangerous and if it unwinds quickly, we will have another major decline in the stock market and massive deflation. The average Joe has no clue about this stuff, but Roubini is warning that this trade is maturing. Asset inflation may go on for a little while, but it cannot go on indefinitely. This is a warning little investor! And you all can help fight this asset inflation by frugal living.

What Roubini Says Could Happen

There is a fairly strong chance that without true nationalization of the banks, that the US economy will suffer an L shaped recovery. That means of course no real recovery. Roubini has said what I have thought independently, that we have a socialism for the rich, a socialism for the financial sector, as we bail out banks rather than nationalize them. The programs for stimulus of main street, and of the middle class, has been limited in scope because of this preoccupation with the banking sector. We can't just keep giving money to the zombie banks if we hope to recover as a nation.

It is worth a moment to talk about socialism for the banks, which is one definition of fascism. Of course Mussolini said that fascism embodies two factors: One is that there is perpetual war. Indeed, we are ramping up in Afghanistan to protect an oil pipeline and the neocons like Dick Cheney believed in perpetual war. Cheney is a war criminal and should be prosecuted as one. Sarah Palin and Jeb Bush believe in perpetual war.

Traditional fascism denounces democracy, but the foundational philosopher of the neocons, Leo Strauss, believed that you keep the form of democracy but lie to the masses. Paul Wolfowitz, who lied to the masses about WMD in Iraq was his student. Bill Kristol of Fox News, who founded PNAC, was also a follower. Fascism is empire building, and is imperialistic, and these men are always going to be guilty of war crimes like George Bush is. Interesting that George Bush's grandfather, Prescott Bush, funded Adolph Hitler. There is a close philosophical alignment of historic fascism and a more subtle, but just as sinister neocon fascism.

The Bush fascism, where oil companies dictated the course to war in Iraq in order to increase their reserves, has severely set back this country. Roubini says the failed policies of the Bush administration added to the economic woes of the nation. Even fascism according to Mussolini allows for a little freedom for the common man, but not enough freedom to hurt the state in their quest for world dominance.

The second factor Musolini attributed to fascism is exactly what we are facing now with the banks. Corporate power is playing a big roll in what we are doing regarding the banks. And Franklin D Roosevelt warned about corporate power when he said:

"The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism—ownership of government by an individual, by a group, or by any other controlling private power."

I have written extensively about the corporate power grab by the oil companies, Indeed, in order to finance this power grab, the way was lubricated by the international bankers at Basel II. The off balance sheet accounting that Basel II allowed made it possible for the banks to go berserk in their offerings of toxic mortgages to an unsuspecting middle class.

My Predictions and Concerns

My personal opinion is that the banking sector could be damaged to even a greater degree than Dr Roubini is calling for. I hope I am wrong, but I have an uneasy feeling because prices remain too high for big ticket items. Cars are too expensive, houses remain too expensive, credit is just a big pain in the neck, and credit card issuers are borrowing at less than 1 percent from the government yet are giving no relief to cardholders. I have called for a boycott against paying back these greedy usurious rates that are being charged.

I fear that commercial real estate is close to a tipping point, and that we will see a deterioration in bank loans to a degree not yet understood. Alt A, option arm loans, and prime loans to buyers who had good credit but bought too much house with adjustable mortgages could all melt down through 2011. Talk to me in 2012, but until then live very cautiously. Bernanke says that fixing loan supply is the answer to financial nirvana. But I say, if there is little loan demand, abundant supply will not be the solution! 

I have noticed a lot of programs on TV about the security of the FDIC, about good local bankers, etc. These clearly are orchestrated attempts to keep people from taking money out of the banks. If this withdrawel of money from the banks was not a concern, you would not see this sort of programming!!!

My other greatest concern is about the middle class. Consumer spending comprises 70 percent of the GDP in the United States. But the Basil II attacks on the middle class have weakened the golden goose of world prosperity, which goes to show that international bankers are indeed the most stupid people on the face of the earth. Americans will no longer spend indiscriminately just to give these bankers the chance to get rich on our interest payments!

If American consumers change their spending habits long term, highly leveraged banks and businesses will have severe pain, and so will the economy. But it is necessary that the middle class retrench after all the economic attacks they have been under by the financial class. That attack, after all was the true class warfare, waged from the top down.

Roubini spoke of a meltdown in the Fall of 2008 and we know by Bernanke testimony that this was a September meltdown when 550 billion dollars were taken out of the US banking system within 2 hours. I want to know who started that run and if it was some sort of blackmail by the international financial system. American taxpayers have the right to know because Paulson cited this meltdown as a reason all of the first tarp money went to the banks instead of for buying up the frozen bonds.

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Comments 6 comments

TheMoneyGuy profile image

TheMoneyGuy 7 years ago from Pyote, TX

This is your best piece to date. It is so exact as to the state of Affairs, I try to get to this point, but get overcome by my emotions and never get it out this clearly. I hope you don't mind if I take every opportunity to link to this hub.

TMG


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

I am flattered, Moneyguy. I have followed the housing bubble since late 2005 and I have tried to get my arms around the magnitude of the problem. I know that there are factors that could stabilize housing, like foreign buyers coming to LA and SF, but I wonder if they can do enough to prop up the economy. I just don't know if there are enough of them. If there are not enough of them, economic factors relating to the middle class burnout surely will take over and we will sink deeper. I was in the JC Penny home store and big ticket items are marked down 1/3 to 1/2 all over the store.

California alone, the eighth largest economy in the world, can destroy the banks by herself. And I remember talking about it and also wondering why Watchovia ever bought Lincoln (World) Savings and Loan in early 2006. Everyone was blogging about how that would sink Wachovia. They were right! I think most bankers have not even yet come to grips with how this will all play out. Pollyanna will have to have a stake driven through her heart for reality to manifest.


Barbara Yurkoski profile image

Barbara Yurkoski 7 years ago

bgamall

I read this with interest as I too find it frustrating to see those arrogant bankers taking the American people’s money without sufficient accountability and I share your view that the majority of economists (and pretty well all the business press) are just apologists for the economic elites.

At first I was puzzled by your use of the term fascism, but in the sense of socialism for the rich it makes some sense, although within a democracy.  But the lack of critical views in the mainstream media weakens the effect of democracy for sure.  And the details are pretty confusing for most people to follow.  They can be robbed blind in plain view if the process is complicated enough - like the financing behind sub-prime mortgages.

Another thing that concerns me is that the North American lifestyle needs to change, not just because of the economic crisis but because of its effect on the environment - but this is getting lost in the panic to keep the economy afloat.


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

I think that the lifestyle will change, however I am amazed that consumer spending was up some in Jan-March 2009. Some was from tax refunds no doubt.


loute profile image

loute 7 years ago

There is some solid info in this and I enjoyed reading it! Thanks for cutting out the b.s.!


bgamall profile image

bgamall 7 years ago from Las Vegas, Nevada Author

Thanks Loute, I try!

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