Breakfast With Roubini

http://www.ft.com/cms/s/2/2cb543cc-595b-11df-99ba-00144feab49a.html

It's good to know that Gillian Tett (Financial Times' US managing editor) is keeping up with "Dr. Doom" doing a breakfast interview at the trendy Soho Grand Hotel in Tribeca, New York. Surrounded by beautiful people in the expensive and expansive lobby, one can get a double espresso for $8, a granola for 9$ and a "frittata" for $16.

But Tett reminds us that Nouriel Roubini is not your average egg head. He was practically alone in 2006 when he gave a big speech to the IMF warning that the "United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and ultimately a deep recession", along with "homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system grinding to a halt." As Tett puts it, "It was a bold call; so much so that many policymakers and economists thought Roubini was slightly mad."

But, in 2007, when the financial crisis exploded, the world realized that Roubini had called it. Again Tett: "Today policymakers around the world hang on his words, journalists flock to his speeches to hear his latest predictions and clients pay big money to receive analysis from his consultancy company, Roubini Global Economics." His influence has stretched far beyond the business world to Hollywood where he appears briefly as himself in the new Oliver Stone movie "Wall Street: Money Never Sleeps" which is the sequel to the original "Wall Street."

Even at the start of 2007, when Roubini attended the World Economic Forum in Davos to make the same prophesies he had espoused in the fall of 2006, his views were widely dismissed (again!). Of course, there are many of us who wonder what gets done at Davos (aside from "being seen") anyway. At that time, Roubini recalls, Micheal Lewis (whose current book, "The Big Short", is now the #1 non-fiction best seller), wrote an article which labeled "... Cassandras such as Roubini as 'wimps' and 'ninnies'." Now, Lewis has written a book which chronicles what Roubini had predicted.

For Roubini, the summer of 2006 was critical: the housing market had peaked and that was his idea of the immediate trigger for impending "doom."

His perspective today is that Greece reflects a bigger problem facing the western world: governments appear to lack the stomach to tackle spiraling government debt. Today, he sees himself as a "centrist" on economic issues since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals - but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called "Austrian School" of economics. He thus sees himself as "pragmatic and eclectic."

With all of this, Roubini is hoping to evolve from"Dr. Doom" to "Dr. Realist." He's tired of the one title and feels deserving of the other. We agree.

With her article, Tett goes on to do the reader a service by connecting, as many of us have, Roubini to Nassim Nicholas Taleb, who, in 2007, published an attention grabbing book, "The Black Swan", in which he urged investors to prepare for events so rare that they were unimaginable in advance. These so-called "black swans" could, he predicted, take markets completely by surprise.

For Nouriel Roubini, however, the concept of a "black swan" is not helpful in looking at the current credit crunch. Instead, he prefers to describe the dramas of the past few years as a set of "white swans", in the sense that they are following a pattern that is not that rare, since it has already been played out numerous times across the world recently. Roubini feels that emerging market countries have had these kinds of economic shocks recently and that they were just precursors of the big worldwide one: "... western governments have become so debt-laden that their fiscal fundamentals look worse than many non-western nations." He adds that the debt to GDP ratios of the BRIC countries are substantially similar to, or even less than what countries like the UK and US are evolving to: roughly 100%, or more (Brazil 57%, Russia 6%, India 85%, China 22%). Western countries are now "piling on" debt amid sluggish growth.

Overall, Tett presents the new "Rock Star Roubini" as more balanced in his views than many in his profession had heretofore seen. In that sense, as well as in an economic sense, her article is an "education".