Wednesday, February 20, 2008

Another 12-step program — to "financial disaster"

Professor Nouriel Roubini of New York University’s Stern School of Business says the U.S. economy is heading for a curl-your-hair catastrophe, as reported in the Financial Times. (Reading it requires free registration.)
Recently, Professor Roubini’s scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006. At that time, his view was extremely controversial. It is so no longer. Now he states that there is “a rising probability of a ‘catastrophic’ financial and economic outcome". The characteristics of this scenario are, he argues: “A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe.”
Roubini sees the economy collapsing in 12 steps, beginning with "the worst housing recession in U.S. history" and an end stage of "a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices.”


I don't know whether his prediction will turn out to be right, partly right, or wrong, any more than he does. Still, whatever your own views and strategy, it's not a bad idea to think about the worst-case scenario.

Before you fall into a decline or commit pre-emptive suicide, remember that scare stories always draw
better readership than agnostic ones. Not to minimize what seems to me a dangerous situation for the economy, but the stock market, at least, proverbially "climbs a wall of worry." That is, at any time, including a bull market with the afterburners on, all kinds of threats loom on the horizon. The institutional investors (mutual funds, hedge funds, money managers, etc.), who collectively set the direction of the market, are used to constant viewing-with-alarm and normally discount it, just as they normally regard a bear market as an opportunity to buy names they like at lower prices.

But what Roubini is talking about here is something more than a normal correction. He's describing the economy as a smoking hole. Even steel-nerved money managers can panic in that kind of situation. Equally important, such a disaster would hardly be limited to the stock market. It would frap everybody who has savings, and even many of those who just prefer to sleep with a roof over their heads.

[I am not a financial professional. Nothing here should be construed as financial advice.]


If something like Roubini's nuclear winter scenario comes to pass, there would be plenty of social and political fallout, depend on it.

Some bloggers suggest a silver lining to economic Armageddon: potential immigrants will discover the joys of home, immigrants will un-immigrate, and the American public, cured of their Candide-like optimism and in no mood for still greater job competition, will demand serious border control.

It's an ill wind that blows no good and all that, but if millions of people find themselves out of work and their savings binned, the silver will be lining a very dark cloud. Given today's ethnic, gender, and racial jockeying, I can see an even more intense blame game — perhaps most of it directed against the usual scapegoats, white males. That could be interesting: people struggling to keep body and soul together, being told for the millionth time that they are privileged oppressors. Maybe even the thickest of them will finally learn to add two and two, and stop making excuses for reverse discrimination.


And while one would hope that Americans, individually or in voluntary groups, would use their initiative and creativity to survive, it's more likely that 70 years of
federal government programs supposedly answering every need have deeply embedded a belief that the government is mother, daddy, rich uncle, and psychotherapist. Think millions marching on Washington for more welfare. Except … if Roubini's End Times scenario comes true, the government won't have any largesse to give. There will be little left to tax for revenue, except the very rich, who can be safely assumed to make sure that doesn't happen; nobody to buy U.S. bonds, so the government won't get out of it by borrowing; and no use printing a storm of debased currency.

Perhaps the World Bank will consider grants in aid to the United States, predicated on U.S. pledges to reform itself.



Tanstaafl said...

Like our wonderful immigrant-invaders it seems our financial-larcenists only benefit society if you completely neglect the costs and chaos they cause.

With such big brains you'd think the economist-apologists might have predicted that we didn't need all those "cheap" immigrant-babymakers to build houses. Then again maybe it's because they use those big brains not to figure out what's good for the West or its citizens but to dream up excuses that kinda sound plausible to the "rednecks" while really serving the purposes of the plutocrat globalists. True artists they are. BS artists.

Let me guess. Their solution to our problems is... more immigration and less financial regulation.

Rick Darby said...


You write: "Then again maybe it's because they use those big brains not to figure out what's good for the West or its citizens but to dream up excuses that kinda sound plausible to the 'rednecks' while really serving the purposes of the plutocrat globalists."

I see the motives of the Big Brains in the same way. But the bigger the brain, the harder they fall sometimes — remember the Long Term Capital Management debacle? (That time, the financial Establishment and central bankers got together to save the system the LTCM boffins nearly managed to nuke.)

But I wonder if even the globalist mandarins have caught a bad case of hubris and will bring down Nemesis on themselves along with us plebs. A national, or international, economic dog's breakfast is one of the few factors that can lead to revolutionary changes. Just when they think they've almost finished off the national state and made the world safe for plutocracy, they may yet find that they've overreached, and courted the lightning bolt.

Anonymous said...

Hi Rick,

Have read and enjoyed your blog for a number of months.

Have just read your comments re VA on Austers blog. And also the following by Auster:

There won’t be any further postings today. But don’t worry, I’m not “vanishing.”

So, for someone who is spiritual and intelligent - why have you decided to join Auster's Arsehole club.

Tanstaafl said...

No, it's pretty clear from history that the parasites will move on to the next civilization, mostly intact and celebrating their foresight and cleverness, while us plebs are left pointing fingers and blaming each other.

Or at least that's been the MO since Babylonian times. Perhaps this is the end of the line, but I wouldn't bet on it.

Tanstaafl said...

I'm also surprised you've lined up with Auster. VA is an honest and good person, a valuable source of information and inspiration. Auster is a passive aggressive weasel who specializes and delights in tearing down others. Like his own liberal bugbears he actually inverts reality and claims to be the victim of VA's "attack".

You stand by that?

Rick Darby said...

For the record, I think the world of VA.

She did, in my opinion, way overreact to a single negative criticism. She was not, as she claimed, subjected to a "two-minute hate." She claimed that she was "swarmed" by vicious VFR partisans in her personal e-mail, and while that's possible, it seems unlikely. She offered no examples, implying that they were so abusive and pathological that even to quote a few would have been defiling. I've been following VFR for three or four years, and have never seen anyone in basic agreement with Auster who struck me as the sort of person who would "swarm" over VA.

And she was ungracious in characterizing anyone who thought her posts were too long as suffering from attention deficit disorder. I wouldn't dream of telling her or any blogger how to write, but she's out of line when she insults readers who found her increasingly essay-like postings more than they could comfortably digest.

I sincerely hope VA will take some downtime, cool her jets, and return to the blogosphere. I will welcome her back.

Tanstaafl said...

So her transgressions are overreacting to criticism, ungraciousness, and insulting her readers?

Compared to Auster, by these very metrics, VA is the better person. Do you not think Auster spends an even larger fraction of his time responding to critics, and in many cases, including this one, overreacting? Do you not think he is often ungracious and insulting to his critics even when they are his own readers?

And that's just within his own tightly controlled echo chamber. When he ventures forth from it he can be even more petty and ill-tempered. Remember the thread a few months ago at VA's? I captured those comments and others here.

Unlike VA, Auster thinks so much of himself that he decides who is subhuman (me for one), who is insane, who should be cast from society. All based on his personal judgment. He's a hypocrite who, when he's not attacking someone else, is whining about how yet another person is attacking him. When he's not criticizing liberal tactics, he's using them himself.

To me his rationalizations and excuses have grown increasingly irrational and inexcusable. I respect your opinion, I'm just having trouble understanding it.

Rick Darby said...

Re Lawrence Auster, may I point out what I say in my disclaimer: "My placing a site on my blogroll or quoting from a source does not imply agreement with every idea, attitude, punctuation mark, or space in it."

Can we leave it at that?