In Crisis Economics: A Crash Course in the Future of Finance, Nouriel Roubini - renowned economist and professor of economics at NYU's Stern School of Business - reveals the methods he used to foretell the current financial crisis before other economists saw it coming and shows how those methods can help us make sense of the present and prepare for the future.
Nouriel Roubini is the co-founder and chairman of Roubini Global Economics, an innovative economic and geostrategic information service and consultancy named one of the best economics websites by Business Week, Forbes, the Wall Street Journal and The Economist. He is also a professor of economics at New York University's Stern School of Business.
Dr. Roubini has extensive policy experience as well as broad academic credentials. From 1998 to 2000, he served as the Senior Economist for International Affairs at the White House Council of Economic Advisors and then the Senior Advisor to the Under Secretary for International Affairs at the U.S. Treasury Department, helping to resolve the Asian and global financial crises among other issues. The International Monetary Fund, the World Bank and numerous other prominent public and private institutions have drawn upon his consulting expertise.
He has published over 70 theoretical empirical and policy papers on international macroeconomic issues and co-authored the books Political Cycles: Theory and Evidence, Bailouts or Bail-ins?, Responding to Financial Crises in Emerging Markets and Crisis Economics–A Crash Course in the Future of Finance. Dr. Roubini's views on global economics issues are widely cited by the media, and he is a frequent commentator on various business news programs. He has been the subject of extended profiles in the New York Times Magazine and other leading current-affairs publications. The Financial Times has also provided extensive coverage of Dr. Roubini's viewpoints.
Dr. Roubini received an undergraduate degree at Bocconi University in Milan, Italy and a Ph.D. in economics at Harvard University. Prior to joining Stern, he was on the faculty of Yale University's department of economics.
Nouriel Roubini, author of Crisis Economics: A Crash Course in the Future of Finance, calls the financial regulation reform bill in Congress a step in the right direction, but says it doesn't go far enough.
He argues that the economic crisis has actually made banks "too bigger to fail."
Downward trend in the business cycle characterized by a decline in production and employment, which in turn lowers household income and spending. Even though not all households and businesses experience actual declines in income, they become less certain about the future and consequently delay making large purchases or investments. Consumers buy fewer durable household goods, and businesses are less likely to purchase machinery and equipment and more likely to use up existing inventory instead of adding goods to their stock. This drop in demand leads to a corresponding fall in output and thus worsens the economic situation. Whether a recession develops into a severe and prolonged depression depends on a number of circumstances. Among them are the extent and quality of credit extended during the previous period of prosperity, the amount of speculation permitted, the ability of government monetary and fiscal policies to reverse (or minimize) the downward trend, and the amount of excess productive capacity. Comparedepression.
The FDIC is one source of the moral hazard in the financial system. Certainly it contributed to the complacency that led to the crisis.
At the moment, many people think FDIC's benefits in dampening bank runs outweigh its costs of increasing the taxpayers exposure to moral hazard, but that opinion may change as this economic episode is viewed from greater distance in the future.
While I agree with a lot of what Mr. Roubini says, I do think his solutions are not sufficiently radical. Banks provide services to society. Some services such as money transfers, deposits, and loans have utility like characteristics. If we want to participate in society we have to make use of those services. Furthermore, and Mr. Roubini talks to this somewhat, credit is crucial for economic growth and/or recovery. Today the banking system has tightened credit resulting from the 2008-2009 mess. And that precisely when we need credit the most. That is why I advocate for a bifurcated banking system where Utility Banks are economically and legally separated from Diversified Banks. So we should not just break up those institutions that are too big to fail or too complex to regulate, but we should also have a two tiered system.
The 2008 meltdown could have been totally prevented, but in 1998 Fed Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and lacky Larry Summers conspired to prevent proper regulation of Wall Street, banks, and the derivative market.
Brooksley Born, head of the CFTC, Commodity Futures Trading Commission, specifically WARNED of the coming disaster and tried to impose regulations but was stopped by the three stooges.
See the new explosive expose’ online:
PBS Frontline: THE WARNING.
"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of the CFTC, Commodity Futures Trading Commission, who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis.
"They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?" - Frontline
LOL!!! From Time Magazine June, 1933:
"Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed … would rivet upon their institutions what they considered a monstrous system… Such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level."
The system that caused so much concern & consternation?