a good article in nytimes
for full article goto
http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html?_r=2&pagewanted=all&oref=slogin&oref=slogin
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.
But
Roubini was soon vindicated. In the year that followed, subprime
lenders began entering bankruptcy, hedge funds began going under and
the stock market plunged. There was declining employment, a
deteriorating dollar, ever-increasing evidence of a huge housing bust
and a growing air of panic in financial markets as the credit crisis
deepened. By late summer, the Federal Reserve
was rushing to the rescue, making the first of many unorthodox
interventions in the economy, including cutting the lending rate by 50
basis points and buying up tens of billions of dollars in
mortgage-backed securities. When Roubini returned to the I.M.F. last
September, he delivered a second talk, predicting a growing crisis of
solvency that would infect every sector of the financial system. This
time, no one laughed. “He sounded like a madman in 2006,†recalls the
I.M.F. economist Prakash Loungani, who invited Roubini on both
occasions. “He was a prophet when he returned in 2007.â€...................................................................
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