Economist Nouriel Roubini has been an accurate forecaster of the current downturn. Last fall, when we were still riding high, he predicted (as did this blogger) a serious crash. Recently he has been making the rounds of the financial media spreading gloom. He is opposed to the Fannie and Freddie bailout (it hasn’t happened yet), and sees blood in the streets with no hope of keeping us out of a great depression.
He is not for the faint of heart.
This blog, unfortunately, has tended to agree with him. With virtually every economic indicator dragging us downward, and even the U.S. government in major debt, I am beginning to think the unthinkable: U.S. government default. It could happen. (It would be the natural legacy of the Bush administration – complete and utter collapse and failure).
That said, I disagree with him about the Fannie and Freddie bailout, and about the ultimate consequences of our current crisis. Bernanke, Paulson, and crew must stick their fingers in as many holes as possible to prevent the dam from breaking. Furthermore, feeding a panic mindset is not helpful right now. Things are going to get worse before they get better, but a government managed soft landing is very possible and must be pursued. There is definitely a floor beneath us.
In principle, there should never be a government bailout. In practice, there sometimes must be. However, we must make sure that our representatives work to put in place the kind of safeguards necessary to prevent this kind of crisis from happening again (though it surely will).
Here’s Roubini with Henry Blodget on Yahoo Finance.