Nouriel Roubini | Nov 18, 2008
Here is below the annotated transcript of my talk at the American Enterprise Institutes September 30, 2008 seminar "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?" The transcript is courtesy of The Housing Doom. For those who are interested there is also a video version of my talk.
Nouriel Roubini: [23:34] Well, Desmond Lachman described very well in his remarks why things are getting worse rather than better in the housing market, and I share his outlook and pessimism. I would like to elaborate on the broader picture about whats happening in the economy and the financial markets.
Ive been saying for a while this will be the worst financial crisis the US has experienced since the Great Depression and it looks like the worst one. I mean I dont think theres anything thats happened since the Great Depression looks so severe. Of course the real economic consequences in terms of output contraction are not going to be as bad as the Great Depression because there is a massive amount of policy action, but in terms of financial shock, I mean what does happen in the last few months is really quite unbelievable, every other week another major financial institution going belly up.
The other observation is that while were talking about subprime mortgages and housing, I think theres a growing recognition that this was not just a subprime mortgage problem, where there much more generalized asset bubble and credit bubble in the economy. It was subprime, it was near-prime it was prime mortgages, there were massive excesses also of underwriting in commercial real estate, the boom in the indebtedness of the household sector included also unsecured consumer credit like credit cards, auto loans, student loans with all this other excesses in the corporate sector [25:00] coming from LBOs that should never have never occurred, financed by these leveraged loans, a trillion-plus LBO with a debt to equity ratio that didnt make any sense. Excesses of borrowing also by municipalities — in the last real estate recession muni bonds were trading like junk bonds because there were many municipalities going belly up, the same thing is going to happen right now.....
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