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Sunday, February 1, 2009

[roeoz] Roubini Sees Global Gloom After Davos Vindication

Posted by AccGURU

Roubini Sees Global Gloom After Davos Vindication


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."

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."


As long ago as February 2007, Roubini was writing on his blog that
"the party will soon be over," and warning of "painful consequences
for the U.S. and the global economy." By last February, his tone had
become apocalyptic, raising the specter of a "catastrophic" meltdown
that central banks would fail to prevent, triggering the bankruptcy of
large banks with mortgage holdings and a "sharp drop" in equities.

The next month, Bear Stearns Cos. failed, to be taken over by
JPMorgan Chase & Co. in a government-backed deal. Then, in September,
Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard
cash and depriving businesses and households of access to capital. The
U.S. took over AIG, Fannie Mae and Freddie Mac, and the Standard &
Poor's 500 Index suffered its worst year since 1937.

"I was intellectually vindicated," Roubini says. "But I was
vindicated by having an economic disaster which has political and
social consequences."


Roubini's predecessors in the role of economic nay-sayer include
some well-known names: Joseph Granville, publisher of the Granville
Market Letter, who forecast the stock-market declines of 1976 and
2000; Henry Kaufman, who as a managing director at Salomon Brothers
projected rising interest rates that led to a U.S. recession in the
early 1980s; Marc Faber, publisher of the Gloom, Boom & Doom Report,
who predicted the 1987 stock crash; and Yale University's Robert
Shiller, a former colleague of Roubini's, who forecast the end of the
dot-com bubble in his 2000 book "Irrational Exuberance" and said in a
second edition in 2005 that the U.S. housing market had undergone the
biggest speculative boom in U.S. history.

Granville, 85, says the key to being an outlier is not to doubt
your analysis.

"I don't have anything to do with emotion," says Granville, who's
based in Kansas City. "Keep your head, follow the numbers and ignore
the rest."

Roubini was born in Istanbul, the son of an importer- exporter of
carpets, and spent his childhood in Israel, Iran and Italy. It was
while living in Milan from 1962 to 1982, he says, that he became
attracted to economics: "Economics had the tools to understand the
world, and not just understand it but also change it for the better."

Roubini, who's now working on a book about the crisis, says he
takes no particular pleasure in his role as Dr. Doom or the attention
it brings him.

"I'm not a permanent bear," he says. "I'll be the first to call a
recovery, but I just don't see it yet, and it's getting uglier."



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