Roubini Predicts More Global Gloom After Vindication at Davos

Source: Bloomberg


Jan. 30 (Bloomberg) -- At the World Economic Forum two years ago, Nouriel Roubini warned that record profits and bonuses were obscuring a “hard landing” to come. “I really disagree,” countered Jacob Frenkel, the American International Group Inc. vice chairman and former Israeli central banker.

No more. “Roubini was intellectually courageous, and he called the shots correctly,” says Frenkel, whose AIG survives only on the basis of more than $100 billion of government loans. “He gained credibility, and he deserves it.”

This week, New York University’s Roubini returned to the WEF and the Swiss ski resort of Davos as the prophet of the worst economic and financial crisis since the Great Depression - - joining the ranks of previous “Dr. Dooms” who made their names through contrarian calls that proved correct.

Even as he wins plaudits for his prescience, Roubini, 50, says worse lies ahead. Banks face bigger credit losses than they realize, more financial companies will require state takeovers and the world economy will keep shrinking throughout 2009, he says.

“The consensus is catching up with me, but it’s still behind,” Roubini said in an interview in Davos. “I don’t know what some people are smoking.”





Read more: http://www.bloomberg.com/apps/news?pid=20601085&sid=a6A9lCHrtAqk&refer=europe

is Obama resistant to this. It only makes sense to me.


With that bubble now popped, Roubini remains more pessimistic than economists elsewhere. The IMF forecasts global growth of 0.5 percent this year and bank losses from toxic U.S.- originated assets of $2.2 trillion. By contrast, Roubini sees the global economy shrinking this year, and banks writing down at least $3.6 trillion -- compared to the $1.1 trillion disclosed so far.

While the U.S. government is resisting nationalizing its biggest banks, Roubini says it will have no choice because they are now “effectively insolvent.” And the outcome may be even worse than even he anticipates if governments fail to take aggressive steps to recapitalize banks and revive their economies, he says: “The risk of a near-depression shouldn’t be underestimated.”

as it was that Frenkel and his ilk were in deep denial and/or delusion.