Wikinvest Wire

Ten who saw the meltdown coming

Monday, October 13, 2008

This list of ten people who saw the financial meltdown coming from TimesOnline in the U.K. has a decidedly British slant (I've never heard of half of these fellas), but the Americans that showed up on the list are notable and very familiar (plus there's a dead Russian).

Topping the list is Vince Cable, shown below. Does he look familiar to anybody aside from Dearime? Anyone ever heard of him?
IMAGENo matter.

He surely deserves the number one spot simply for having asked Prime Minister Gordon Brown in 2003, who was then Chancellor of the Exchequer (~Secretary of the Treasury) as everyone was getting rich by climbing the property ladder, "The growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level. What action will the Chancellor take on the problem of consumer debt?”

Obviously, aside from taking credit for the booming U.K. economy, Mr. Brown didn't take any action - this was a common response by policymakers a few years back.

Here are the other well-known Americans on the list:

5. Nouriel Roubini - economics professor

Aka Dr Doom, Dr Roubini is an economics professor at New York University. On September 7, 2006, at an International Monetary Fund meeting, he announced that a crisis was brewing. He said 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.

Homeowners would default on mortgages, trillions of dollars of mortgage-backed securities would unravel worldwide and the global financial system would shudder to a halt. These developments, he said, would cripple major financial institutions like Fannie Mae and Freddie Mac.

As Mr Roubini stepped down, his host said: “I think perhaps we will need a stiff drink after that.” They do now.

9. Stephen Roach - senior executive at Morgan Stanley

In November 2004, Mr Roach predicted an “economic Armageddon”, in part due to the record US current account, trade and government deficits. His outlook was largely dismissed at the time.

Having being proved right, he recently went on to accuse central banks of being “asleep at the switch” in failing to stop the escalating crisis. “The lack of monetary discipline has become a hallmark of unfettered globalization,” he said.

10. Ron Paul - Republican Congressman

Back in September 2003, Mr Paul told a House Financial Services Committee that: “Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market.

“This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions.”
The dead Russian was Nikolai Kondratiev who, it now seems was only off by about ten years in his theory of 50-60 year boom-bust cycles for Western economies.

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12 comments:

Anonymous said...

Doesn't it make a difference if a Keynesian or an Austrian predicts a crisis?

Chuck Ponzi said...

Tim,

I assume you've seen GS's near-term oil target at $70, right? What do you think, and what do you know that they don't?

Also, did you see that they see a possible slide to $50/bbl?

Chuck Ponzi

http://biz.yahoo.com/rb/081013/business_us_markets_oil.html

Tim said...

I think it may well go lower in the near-term, but ultimately, when all this newly created money and credit washes through the system, it will go much, much higher.

DigDoug said...

the game is over.

a new game is well underway.

you go to college and run businesses under assumed rules of an assumed game.

this 'fixing' is no more than a stripping of rules from a game.

a game with ever changing rules and rules that only apply to indeterminate groups is synonymous with a game that has no rules at all.

what do we call this sort of game? chaos.

Chuck Ponzi said...

Really Tim?

You think so?

My opinion, based on my research is that this is deleveraging induced deflation.

Besides, thrift is the new excess. I'm inclined to believe that demand won't return as fast as it disappeared. As Rob Cote put it, "noone ripped out R30 when heating oil prices went down".

I think people are changing their habits pretty fundamentally.

I guess you are in the camp that this will be a v-shaped recession, then, right? When do you think we'll start seeing a recovery in the stock market then? What about the housing market?

I'm interested to know what is going to drive demand so that oil prices will go back up. I might find a good entry point then.

Chuck

Tim said...

I hope your oil research is a lot better than your gold research.

Anonymous said...

Kondratieff wasn't off by ten years.

The depression started in 2000, when the Dow, S&P and Nasdaq all topped.

While the S&P and Dow returned to their previous highs, the USD was worth less, so the stocks were actually worth less. The Nasdaq never came close to it's 2000 high.

The only thing that kept the economy afloat since 2000 was the low interest rates which fueled the real estate bubble, which employed construction workers, realtors, and bankers, which in turn kept the restaurants and retail stores and Home Depot going.

The top of the bull market, in stock prices and economically, was 2000. With the dollar dropping, stocks going lower, and gold rising, we have been in a bear market since then.

Kondratieff was correct.

NC Jim said...

I would add Doug Noland whose "Credit Bubble Bulletin" at Prudentbear.com documented and analyzed the massive increase in credit for many years.

http://www.prudentbear.com/

It was Noland who I first saw discuss the "moneyness of credit" and the fact that Wall Street Finance could create it's own credit. His work wil be studied as the first draft of history.

Jim

dearieme said...

Vince Cable is an MP and the Liberal Democrats' economic spokesman. He used to be an economist with Shell. He can be rather impressive - I suspect that the Conservatives wish that he was one of theirs. (I speak as the husband of a Cnservative.)

dearieme said...

Wikipedia says that he was Chief Economist at Shell; he studied Natural Sciences at Cambridge and has a PhD in Economics from Glasgow So, unlike most politicians, he knows what the words mean.
By contrast, Brown's PhD is in History (from Edinburgh - at which fine University the bugger bounced a cheque on me, I'll have you know.)

IIO said...

how about William Strauss and Niel Howe, who in their book "Generations" predicted a crisis era right about now. The book was written in the early 1990s.

Chuck Ponzi said...

I stand by my prediction.

Gold is still in a bubble. The fact that it has a dead cat bounce doesn't mean it's fairly valued.

Nothing goes straight up or straight down.

I remember that Gary Watts was proven correct in 2005. You even congratulated him on his prediction in this blog. He was subsequently trounced.

Too much hubris.

I will admit that I could be wrong too, but I doubt that less than one month determines a trend of gold prices.

Perhaps you see my questioning as threatening. In which case, I'll take it elsewhere. Otherwise, I appreciate your open mind on something for which you are paid to invest in.

Prices go up, prices go down. Gold is still a barbarous relic. It produces nothing, and offers no security other than the perceived value of its scarcity. Just remember to see the forest for the trees.

Chuck

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