Home - Index - News - Krisen 1992 - EMU - Economics - Cataclysm - Wall Street Bubbles - US Dollar - Houseprices

On the Risk of "Genearalized Meltdown of the Financial System"

Nouriel Roubini takes his somber views one step further and discusses the possibility of a crisis in some detail.
"With the Recession Becoming Inevitable the Consensus Shifts Towards the Hard Landing View.
And the Rising Risk of a Systemic Financial Meltdown,"
Even by Roubini standards this is grim reading.
Naked capitalism, November 17, 2007

I have been worried about the potential for a nasty financial implosion for some time, but have chosen to let my selection of material do the talking. One reason is that I am neither in the markets nor have I delved into the data deeply enough to have enough to warrant taking a public stand. And since fear, whether well founded or not, can turn a problem into a panic, it's best not to yell "fire" in crowded theaters casually. The other reason is that human society has lurched from crisis to crisis and often manages to save itself from falling into the abyss.

And the tools that the powers that be have for ameliorating the damage look woefully inadequate.

Lowering interest rates has neither revived the commercial paper market, salvaged overextended mortgage borrowers, nor made banks more generous with credit.

The ideas for salvaging the housing market basically amount to having the government assume more risk.

Japan at least entered its post-bubble-era hangover with a high savings rate. Lacking that, the US has even fewer options if things turn out badly.

Roubini:
I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before.

Full text

I lack the stature of Summers and Volcker, but I too often feel like a “chastened prophet of doom.”
Brad Setser May 25, 2007