Roubini, the Pessimist in Triumph at Davos
Nouriel Roubini is no longer a prophet without honor. He was lauded at the World Economic Forum in Davos, Switzerland, with plaudits coming from, among others, Jacob Frenkel, vice chairman of American International Group, who publicly disputed the doomsaying economist two years ago. Now Frenkel, whose company was a notable bailout recipient, has dropped to his knees:
“Roubini was intellectually courageous, and he called the shots correctly…. He gained credibility, and he deserves it.”
Is Frenkel saying that others, including himself, knew at some level that Roubini was correct, but were afraid to say so?
Roubini claims he wants to forecast a recovery, but in all honesty, he can’t.
Roubini remains more pessimistic than economists elsewhere. The IMF forecasts global growth of 0.5 percent this year and bank losses from toxic U.S.- originated assets of $2.2 trillion. By contrast, Roubini sees the global economy shrinking this year, and banks writing down at least $3.6 trillion — compared to the $1.1 trillion disclosed so far.
While the U.S. government is resisting nationalizing its biggest banks, Roubini says it will have no choice because they are now “effectively insolvent.” And the outcome may be even worse than even he anticipates if governments fail to take aggressive steps to recapitalize banks and revive their economies, he says: “The risk of a near-depression shouldn’t be underestimated.”
Roubini, who’s now working on a book about the crisis, says he takes no particular pleasure in his role as Dr. Doom or the attention it brings him.
“I’m not a permanent bear,” he says. “I’ll be the first to call a recovery, but I just don’t see it yet, and it’s getting uglier.”
