from RGE Nouriel Roubini

Latest Roubini Interviews With Tech Ticker On Global Deflation Risk, Bank Losses, Rate Cuts In Europe and (GM) Bailouts

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Nouriel Roubini | Dec 5, 2008

Tech Ticker (Dec 4, 2008): 2009 Recession Will Be Severe: 'There Is a Global Deflationary Risk,' Roubini Says (click for video)

From Tech Ticker: 2009 Recession Will Be Severe: 'There Is a Global Deflationary Risk,' Roubini Says

Central bankers around the world are pulling out all the stops in order to combat a severe economic downturn that threatens to get even worse."There is a global deflationary risk," says Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor. "That's what central bankers are worried about."In Europe today, the ECB and Bank of England slashed rates by greater than expected levels. Meanwhile, the Fed and Bank of Japan are taking "unorthodox actions" to pump liquidity into their economies. Both central banks are engaged in "quantitative easing," meaning rates are effectively zero regardless of what the official policy is."The Fed is trying to preemptively avoid a deflation trap [which] is very dangerous," Roubini says. "Whether they'll be successful or not, I don't know."The problem, he says, is there's going to be a "severe recession" both in the U.S. and globally in 2009. That means falling demand for goods and increased slack in the labor markets. That will put further downward pressure on prices and raise the risk of outright deflation, which is defined as: A persistent decline in general price levels, typically accompanied by a severe contraction in employment and economic output."It's hard to undo the structural factor" of falling demand meeting a supply glut of goods and services, he says, recommending the following policy actions to try and stem the deflationary tide:

• A "huge" fiscal stimulus package: $500-$700B.
• Recapitalize the banks faster, i.e., get TARP money distributed sooner.
• Rather than focusing on mortgage rates, reduce the face value of debt owed by "insolvent homeowners" in order for them to be able to spend again and avoid a "tsunami of foreclosures."

Tech Ticker (Dec 5, 2008): Dr. Doom Foresees Much More Pain: So Why Is Roubini's 401(k) All in Stocks? (click for video)

From Tech Ticker:

Dr. Doom Foresees Much More Pain: So Why Is Roubini's 401(k) All in Stocks?

Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor, has earned the nickname "Dr. Doom" for his dire predictions about the economy over the last couple of years (most of which have come true).So it was a shocker when word got out on Wall Street that Roubini was the most bullish guy in the room at a recent dinner he hosted in NYC. There were even rumors Roubini's retirement account was 100% in stocks (since confirmed).Has Dr. Doom become a raging bull?Not quite. But with the financial meltdown in full, protracted swing, it seems as if the rest of the world has caught up with him."The mainstream is getting closer to my views about a very severe U.S. and global recession," he says. "On the other side, I'm not in the Armageddon camp," forecasting a severe recession through 2009, but not a repeat of the Great Depression.So why is Roubini's 401(k) 100% in equities? He's not an active investor, and "over 10 to 20 years equities outperform any other asset class," he says in the accompanying video.Unlike so many others, Roubini's not calling a bottom, for sure: He sees another 20%-30% downside risk for stocks, and advises that investors avoid all "risky assets," including commodities for the foreseeable future. Instead, he recommends Treasuries and, over the medium term, corporate debt.In case you need further proof that Dr. Doom hasn't lost his edge, Roubini predicts that macroeconomic news and earnings will be much worse than expected in the coming months, as the dollar weakens even further. "The surprise is how bad the the economy [will get]."At least there's some things you can still count on in an uncertain world.

Tech Ticker (Dec 5, 2008):'Massive Destruction of Capital': Roubini Sees $3T in Bank Losses, More Bailouts (click for video)

From Tech Ticker: 'Massive Destruction of Capital': Roubini Sees $3T in Bank Losses, More Bailouts

It's gotten to the point where you can't tell the bailout programs without a scorecard, so here goes (with a nod to Fox's Brian Sullivan):

• TARP: Troubled Asset Relief Program. This is the Treasury's big $700 billion ($850B including pork) program that has been used to prop up financial institutions.
• TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.
• TALF: Term Asset-Backed Lending Facility (or "son of Taffy"). Recently announced Fed program designed to help the market for student, auto and other consumer loans.
• CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.
• AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from "breaking the buck."
• TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries.
• SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan's purchase of Bear Stearns in March. Also used to back AIG's balance sheet to avoid total collapse.
• PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed's discount window (back when there were independent broker/dealers).

"Desperate times call for desperate policy actions," says Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor.

Roubini, who predicted the government would need to do many of the programs above long before they were announced, says there are "much more" bailouts and related programs ahead. "We are facing the risk of global deflation," he says (as discussed in more detail here). "The risk is if [policymakers] do too little you end up in a serious depression."

Although concerned there is "some government giveaway" happening, Roubini's big worry is the TARP funds are not being dispersed quickly enough to recapitalize the banks, which he forecasts will ultimately suffer credit losses approaching $3 trillion. This is a "massive destruction of capital," says the famously bearish economist. "If you don't recapitalize the banks, the credit crunch will be much, much worse."

Tech Ticker (Dec 4, 2008): Roubini: Bail Out the Automakers, But Only on These Conditions...(click for video)

From Tech Ticker: Roubini: Bail Out the Automakers, But Only on These Conditions...

Congress should approve a bailout of the U.S. auto industry because the "collateral damage" of their failure would be "very severe," says Nouriel Roubini, economics professor at NYU Stern School and chairman of RGE Monitor."We're spending $2 trillion to bail out financial institutions," the economist notes. "What's the fairness of not giving say $50 billion of low interest loans to automakers to help them restructure?But Roubini is no ally of the auto industry CEOs currently making their case in Congress. He says any government aid must be "highly conditional" and only occur after a prepackaged bankruptcy that includes:

• Replacement of current management
• Concessions from both the UAW and automakers
• A wipeout of existing equity and debt-holders
• Temporary nationalization of the auto industry

The appointment of a "car czar" is clearly a touch subject but Roubini says those worried about moral hazard and issues like free enterprise are fighting the last war.

"There's already massive amounts of government intervention in the economy, we've [crossed] that bridge," he says. "The question now is, what are we doing to do right? If it takes an auto czar to really structure these firms, so be it."