Wikinvest Wire

Roubini and Shiller on Bloomberg

Thursday, January 29, 2009

From Davos, Switzerland, Nouriel Roubini and Robert Shiller were on Bloomberg this morning talking about the outlook for the U.S. banking system and the global economy.

IMAGE Click to play in a new window

After reiterating his view that most of the U.S. banking system is insolvent, Nouriel suggests we proceed directly to nationalizing what's left and Shiller mostly agrees.

Then an ambulance goes by and Bloomberg's Erik Schatzker wonders whether that's another bank being taken the hospital (that's the still you see above - both having a good gallows humor chuckle).

What's kind of remarkable about this interview is that Roubini and Shiller, both early seeers of the financial troubles we are now in the midst of, think that we should be able to just fix the banks, stop the foreclosures, provide even more massive stimulus, and then carry on with basically the same system in place.

Shiller says, "the fundamental problem is, unless we restore confidence, we're going to be in a situation where, when you stop the fiscal stimulus, we come right back down."

But, what if you can't restore confidence in the current system?

It's as if it doesn't really matter that the most massive financial bubble in the history of the world has just met its pin. Instead of rethinking what got us to this point and whether now would be a good time to reexamine the bigger picture (e.g., the nature of our monetary and credit system, what passes for "sound economic" growth, etc.), it's all about bigger shovels to extricate ourselves from another huge hole we've dug.

Amazing ... a form of cognitive dissonance for even the smartest economists.

Here's a related article and the video summary is below:
00:00 Roubini: most U.S. banks "insolvent," losses
00:58 Roubini: nationalization, "near depression"
01:28 Shiller: credit market, favors "Bridge Banks"
03:06 Shiller, Roubini: U.S. economic policy, risks
04:31 Shiller: banking regulation, agency control
05:31 Roubini: cooperation on regulation, change
06:37 Roubini, Shiller: Obama administration's plan
08:16 Shiller, Roubini: Fed experiments, U.S. banks


Nostradamus, apparently said...

I share your amazement. I am dumbfounded daily as I can find almost no one of note except Ron Paul who seems to see the obvious fact that more of the same is not going to work.

This is some kind of mass delusion that has gripped the planet, somewhat like the absurd premise of the movie "The Happening."

For those of us who don't share in the delusion, it is eerie and scary and, as the loneliness takes its toll, we begin to question our own sanity.

Can virtually everyone in government and on the media be wrong? How is it that some normal Joe in Southern Oregon was able to see the tech and housing bubbles forming but Greenspan, Bernanke, et al could NOT???

The only explanation I have is that the world has fallen prey to Toxic Narcissism and believes that the rules of life simply do not apply to them.

For me and other savers, the injustice of it all is staggering.

Obama is no answer. His change rhetoric is just that: empty words. His actions show that he is clearly just another lying politician with either no understanding of or concern for the truth and the harsh realities and choices we face.

Anonymous said...

You are NOT alone!!!!!

Anonymous said...

What I'm unclear about is how to make money in the current environment. Aside from keeping a lot of cash at the ready, possibly buying a foreclosed fourplex or two (if the numbers are truly compelling), what else could one do? How did people make money in 1930-1935? I think it's 1930 right now.

Anonymous said...

Shiller looks amused. Keep in mind that his expertise is in behavioral economics. He is head and shoulder above most in this subject area. His housing index was just an offshoot of some other work he was doing. Yet people only know him as the housing expert.

Anonymous said...

How can the world exist if these two are seen together in the same place?? It like 2 black holes colliding!! All kidding aside if the market listen to them then some of thiscould havebeen avoided. Being a contrarian isn't a total negative thing.

John in Fresno

Chuck Ponzi said...


There are the occasional tin-foil hatters proposing a return to the gold standard.

Trouble is, there's not enough gold to consistently inflate.

Get it?

Do you think people in any government don't want to inflate? The only people that helps is savers in bank accounts. I don't know anyone like that 70 years of getting soundly trounced will do that to a nation.

Eengineer said...

I think many of you are missing the political and psychological factors of this crisis. Roubini and Shiller know what time it is, but if they were to come out and tell everyone how bad it really is they wouldn't get any traction. Say like Ron Paul.

We here may thirst for the truth, and have the stomach to take it, but J6P most certainly does not. Think about how you give your children medicine: hide it in applesauce and sweet talk them. Or veggies: one little bite at a time.

RobertHume said...

Shiller has many good suggestions for reforming the fundamental system in his book "The Subprime Solution".

For example, government-subsidized financial advice for individuals. The advisors would have to have no financial interest in anything they recommend.

Also, make cross-national shorting of real estate markets possible.

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