Roubini on Rose

[boont]

Nouriel Roubini is the subject of a recent interview on the Charlie Rose show.

A conversation with Nouriel Roubini - Charlie Rose

Roubini pretty much called the whole mess some time ago. Of course, no one listened except to cleverly labeled him Dr. Doom. They are now broke and discredited while he is well worth listening to. Especially since people still don't understand what happened to them.

Here is a sample of what he has to say.


But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. "Reckless people have deluded themselves that this was a subprime crisis, he told me. "But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts." All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. "We have a subprime financial system," he said, "not a subprime mortgage market." N.Y.Times

boont

 

[lazygood4nothinbum]

he's a very good speaker for an economist.

i love his subtle indictment of fraud regarding the biases built into the regulators (who couldn't warn of a recession because of "confidence") and into the wall street firms (involved in "sell side research"). wouldn't you love to get your hands on one of those interoffice emails?

 

[d]

wouldn't you love to get your hands on one of those interoffice emails?

or around their necks.

 

[boont]

Emails

I think those emails will come out just like the Enron ones did.

b.

 

[ziggy29]

I think those emails will come out just like the Enron ones did.

Speaking of Enron, it seems we've turned full circle. Enron's shenanigans in valuing its assets gave rise to the mark-to-market requirements which were at least partially responsible for some of the bank collapses when even performing loans became illiquid at almost any price.

 

[boont]

Buffett's take

As painful as the "marked to market" rule was, I notice Warren Buffett, again on Charlie Rose, said he was uncomfortable with any other way of doing it.

In other words, you have to trust the market to value this stuff. Isn't the real problem loading up your balance sheet with garbage more than having to admit it's value at some point?

b.

 

[ziggy29]

As painful as the "marked to market" rule was, I notice Warren Buffett, again on Charlie Rose, said he was uncomfortable with any other way of doing it.

In other words, you have to trust the market to value this stuff. Isn't the real problem loading up your balance sheet with garbage more than having to admit it's value at some point?

The problem is that mark-to-market can break down in dysfunctional, frozen and panicked markets like this one. An orderly, rational market can be trusted to value it. But this ain't an orderly, rational market.

It works great in ordinary circumstances. But when performing paper gets no bids because the market is spooked and you have to mark it down in value as close to zero? Something is wrong there, and all that does is cause more failures, increase the panic and make those markets even *more* illiquid.

I'm not in favor of getting rid of mark-to-market completely. But I do think it needs to be refined or have some type of "circuit breakers" to identify a particularly broken market that's not able to price these effectively. I'm not smart enough to have an answer, but I'd like to think mark-to-market doesn't have to be all or nothing. Most of the time, it's great. But when the market seizes up, it can make things worse.

 

[unclemick]

Screw accounting.

Pssst - dividends!



heh heh heh - yeah, yeah - still got hosed anyway but maybe a little less hosed. Bogle's new book comes out in Nov. - another voice in the wilderness.

 

[boont]

Mark to Market

Ziggy, I think I generally agree. But, at least save the bath water.

b.

 

[unclemick]

BTW - over at the Bogleheads forum - they are pointing to the fact that Roubini is a 'stay the course' index fund kind of steady eddie in spite of foreseeing the current difficulties.

hurry up just stand there!

heh heh heh -

 

[Dawg52]

BTW - over at the Bogleheads forum - they are pointing to the fact that Roubini is a 'stay the course' index fund kind of steady eddie in spite of foreseeing the current difficulties.

hurry up just stand there!

heh heh heh -

He sounds like one of the most unhappy souls that I have ever listened to. Makes me look like a chipper chap.

 

[lazygood4nothinbum]

The problem is that mark-to-market can break down in dysfunctional, frozen and panicked markets like this one.

sorry if off-topic but as an example of malfunctioning mark-to-market, here is an excerpt on how foreclosed properties will be taxed in my county.

If you purchase a property in a foreclosure, your actual purchase price does not reflect the just (market) value used for determining your taxes. Florida law requires our office to use the reasonable market price of a sale of similar homes in your neighborhood (or a similar area) sold under normal financial conditions to determine the assessment -- and that disqualifies the use of foreclosure-related sales.

so i guess it has only been marked to market for that moment.

 

[riskadverse]

BTW - over at the Bogleheads forum - they are pointing to the fact that Roubini is a 'stay the course' index fund kind of steady eddie in spite of foreseeing the current difficulties.

hurry up just stand there!

heh heh heh -

That part confuses me . . . I've seen a number of interviews where he admits to owning index funds which he holds long term. Makes me wonder if he either doesn't believe himself, or worse, avoiding the drawdown isn't worth the effort because we're all screwed.

Jimmy Rodgers on the other hand, sold his US house (for 17M), moved to Singapore, is having his kids learn Chinese, and is trying to convert every US dollar he owns into Yen or Francs. Now, he believes in what he says.

 

[unclemick]

Jimmy Rodgers on the other hand, sold his US house (for 17M), moved to Singapore, is having his kids learn Chinese, and is trying to convert every US dollar he owns into Yen or Francs. Now, he believes in what he says.

Hmmmm - does he still have his 'Investment Bike' and leggy blond chick named Tabitha from back when he wrote the book?

I have no plans to emulate his investment style but at least it makes an entertaining read - soap opera of investment.

Plus he made a lot of money.

heh heh heh - ho hum balanced index, press on regardless, watch the grass grow. Maybe I'll drive across the river to Kansas this weekend and look for the Yellow Brick Road. I've heard rumors about Tonganoxie. .

 

[Gardnr]

BTW - over at the Bogleheads forum - they are pointing to the fact that Roubini is a 'stay the course' index fund kind of steady eddie in spite of foreseeing the current difficulties.

hurry up just stand there!

heh heh heh -

Well if that's true it sure makes me feel better about myself as I watched this thing grow and mostly just stood there. I'm not an economist so I let myself be convinced by the preponderance of voices saying it's not that bad. I think that is something I've learned through this whole thing. Trust my common sense and gut feeling a bit more and look for the skeptics and heed their warning. Too much cheerleading goes on, even amongst the nation's leading economists.

This building of consumer debt (not to mention national debt) and the huge percentage of the U.S. economy that was built on debt-fueled consumerism (70% or so) has made me uneasy for some time. I'm not alone, especially amongst many here.

I guess I just thought it would bring on a downturn of some kind (in the market and the economy) but didn't appreciate the danger lurking on Wall St. that made this into the crisis we've seen. That's why I started buying on the way down earlier than I should have, in hindsight.

I still think we're schizophrenic about this whole thing. We are seeing more articles etc. pointing out the debt load problem and advising people to pay it down and tighten their belts. But at the same time we hear this talk of hoping that people will just get out there and spend again so the economy can start recovering! And we're going to take all kinds of measures beyond what's needed to fix the credit crisis to try to soften the blow as much as possible. We just need to take our medicine in this country for once in a long time. Or else the excesses and bad practices won't be eliminated.

 

[Gone4Good]

Nouriel Roubini is the subject of a recent interview on the Charlie Rose show.

He's been right up until now.

Lets hope he's proven wrong going forward.

 

[Gone4Good]

Jimmy Rodgers on the other hand, sold his US house (for 17M), moved to Singapore, is having his kids learn Chinese, and is trying to convert every US dollar he owns into Yen or Francs. Now, he believes in what he says.

I wonder how his investments in China are doing.

 

[Dawg52]

Turned on CNBC this morning to see what the futures look like and low and behold Roubini is on with his only blue sports coat, blue tie and shirt. Preaching more doom and gloom. Says the recession will run through next year and stocks will drop another 20-30%. Futures tanked as he spoke. Oh well, I'm headed to the golf course this morning with a few cans of [-]beer[/-] medicine.

 

[brewer12345]

Personally, this is what I am most fixated on at the moment:

"Libor for One-Day Dollars Drops to Lowest Level Since June 2004

By Gavin Finch and Candice Zachariahs
Oct. 22 (Bloomberg) -- The cost of borrowing overnight in dollars fell to the lowest level since June 2004 after the Federal Reserve made as much as $540 billion available to money-market funds to resuscitate lending.
The London interbank offered rate, or Libor, that banks charge each other for such loans slid 16 basis points to 1.12 percent today, the British Bankers' Association said. The three- month rate dropped for an eighth straight day, to 3.54 percent, its longest run of declines since May. The Libor-OIS spread, a measure of cash availability, fell to 250 basis points, the lowest level in three weeks. "

 

[Texas Proud]

The problem is that mark-to-market can break down in dysfunctional, frozen and panicked markets like this one. An orderly, rational market can be trusted to value it. But this ain't an orderly, rational market.

It works great in ordinary circumstances. But when performing paper gets no bids because the market is spooked and you have to mark it down in value as close to zero? Something is wrong there, and all that does is cause more failures, increase the panic and make those markets even *more* illiquid.

I'm not in favor of getting rid of mark-to-market completely. But I do think it needs to be refined or have some type of "circuit breakers" to identify a particularly broken market that's not able to price these effectively. I'm not smart enough to have an answer, but I'd like to think mark-to-market doesn't have to be all or nothing. Most of the time, it's great. But when the market seizes up, it can make things worse.

People confuse the mark to market and think it HAS to be what the market says... but that is not true... from Wiki...

Sometimes, there is no market[citation needed]—not for investments like collateralized debt obligations, or CDOs, filled with subprime mortgages. There are few, if any, buyers for such products. This complicates the marking process. In the absence of market information, an entity is allowed to use its own assumptions, but the objective is still the same: what would be the current value in a sale to a willing buyer. In developing its own assumptions, the entity can not ignore any available market data, such as interest rates, default rates, prepayment speeds, etc.


Think 'willing buyer' and 'willing seller' in a normal market... I do not think that all the banks have written down their securites to the current market..

 

[Texas Proud]

sorry if off-topic but as an example of malfunctioning mark-to-market, here is an excerpt on how foreclosed properties will be taxed in my county.



so i guess it has only been marked to market for that moment.

Again, thinking incorrectly from a tax perspective...

It is the 'willing buyer' and 'willing seller'.... on a forclosure they do not list the seller as 'willing', but is forced to sell... and that the buyer would be willing to pay more...

It does keep the tax base up...

BTW, in Houston back in the S&L days, some neighborhoods had between 24 and 50% forclosures... they did have to use the prices as market...

 

[lazygood4nothinbum]

first off i was mostly just being funny. but since you brought it up, just how does your theory of perspective play out when 49% of the sales in an area are the foreclosures? that becomes the market, does it not.

in recognition of such a trend, here's another excerpt from my local property appraiser's office...

As for short sales, Lori believes they now reflect the market and -- based upon an October 2008 advisory opinion from the Florida Department of Revenue (DOR) -- we are generally treating all 2008 short sales as qualified sales for 2009 assessment purposes.

perhaps they are only referring to the "willing" short-sellers. splitting hairs.

ps. speaking of charlie rose, he produced another great program the other night: A conversation about leadership at the Harvard Business School centennial celebration - Charlie Rose