By David Hirst
NOURIEL Roubini, economics professor at New York University, arrives and leaves Australia like a comet with stars in his wake. For Dr Doom (an absurd appendage) predicted the late great break of the US housing-credit bubble and has now ascended as close to Beatlemania as any economist could hope to.
On September 7, 2006, Roubini made his case when he warned economists at the International Monetary Fund that soon the US would face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. His speech was met with cold silence and sniggers.
Almost a year later The New York Times reported that speech, saying Roubini "laid out a bleak sequence of events: home owners defaulting on mortgages, trillions of dollars of mortgage-backed securities unravelling 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.
"Roubini was known to be a perpetual pessimist, what economists call a ‘permabear’. When 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 nay-sayer."
Today Banerji remains great and famous. His yea-sayer "thoughts" can be found at Quotes Daddy, he is loved by the marketeers and has just delivered his latest major "work", The Recession Is Over. The message is very different from Roubini’s assessment.
Roubini’s great sin in 2006 was not his math but his position, for to defy the boomers brought classification as a "doomer" and vilification. It was not until 2007 that people paid any heed to his views. By then the housing-credit boom that Roubini had predicted would bring grief to almost all of us was tottering and soon we were facing capitalism’s greatest
crisis since the Great Depression.
From being laughed at and vilified, Roubini started to move up the charts to eventual superstar status. His predictions proved right. Subprime lenders fell into bankruptcy, hedge funds collapsed and the sharemarket plunged. Unemployment exploded and now the greenback wavers in the face of tremors to come.
We may have escaped the "systemic" collapse of the financial institutions Roubini warned of, but we are not yet, as blowhards like Banerji believe, out of the woods. We still, as Roubini testifies, face deep and dangerous times.
Today I wonder what Roubini has left to offer. His brilliant work was not that of a sole star but one of many who saw exactly what the consequences of bubble economics would bring. Now the bubble masters are back and a new bubble funded by central banks, directly rather than through monetary manipulation, is with us. This is the bubble of quantitative easing and banking in the absence of a moral hazard.
Roubini, perhaps resting in the glory of his great calls, remains gloomy, if not "doomy", about what happens next. Is the recession U, L, or W-shaped? He does not suggest a J.
We must look at others for insights into this new economy rather than make icons of one man. Roubini’s place in history is assured. History is yet to spin its tale. They, the new Roubinis, await our attention.
David Hirst is a journalist, documentary maker, financial consultant and investor. Planet Wall Street is syndicated by News Bites, a Melbourne-based sharemarket and business news publisher.