The other Dr. Doom

The Wikipedia disambiguation page for Dr. Doom looks like it is in need of a little updating. While Marc Faber easily makes the grade, Peter Schiff is noticeably absent along with the subject of this excellent piece in today's New York Times Magazine that carries the descriptive URL - http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html. Who's Henry Kaufman anyway?

The NYT Magazine piece about Nouriel Roubini is must-read material for anyone who's been paying attention to the housing bubble over the last few years. There's lots of great biographical material (he speaks four languages) and at least one disturbing revelation (he likens himself to Alan Greenspan).

But, most of all there's that cool black-and-white photo that just oozes doom. In fact, it looks like Nouriel has just caught a glimpse of some alien space monster that is about to squash him like a bug.

Dr. Doom
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, 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. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer.

Yes, economists and their models...

When will the dismal set learn to set aside their precious models once in a while and apply what, in engineering, we used to call the "stink test"?

That is, when you'd look across the table and ask, "Does this make sense?"

This is the question economists should have asked each other when reports began emerging early in the decade of ordinary people waiting in lines to buy houses with no income, bad credit, and no money down.

Instead, economists tried to justify the abysmally low savings rate by arguing that it should factor in such things as home equity.

ooo

This week's cartoon from The Economist: