Thoughts & Comments
Dr. Doom Just Can't Let It Go
His growth outlook seems to be in the mainstream, but his wacky assertions sure aren't.

Thomas Brown  ( about me )
Posted 02/15/2011

Nouriel Roubini, who was predicting the collapse of the financial system not so long ago and urging that the banking system be nationalized, isn’t breathing his old industrial-strength fire and brimstone anymore. If I read him right in an interview he just did with Forbes, Roubini’s expectations for what’s in store for the economy now are way, way on this side of apocalyptic. In particular, he sees GDP growth this year at around 2.7%, just below the consensus view. Corporate earnings are “very good,” he tells Forbes, while home prices are “probably close to a bottom.”

What the heck happened to the L-shaped recovery?  Roubini’s view is now squarely within the mainstream expectation. Good for him. The facts changed, and so he changed his opinion. Keynes would be pleased.  

That said, there’s still some doom in the old doctor yet. Where, for instance, does he get off saying stuff like this?

Most banks are holding [their CRE portfolios], still 100 cents on the dollar, on their books, even it's worth more like 50, 60 at best. And the Fed has decided to use regulatory forbearance to fudge it, to pray and delay, extend and pretend. 

Loans worth 50 cents on the dollar are sitting on banks’ books at par? That’s just not true. Since the housing blowup began in earnest in 2008, the banking industry has issued two years’ worth of audited financial statements. Those audits, I hasten to add, have been conducted under the eye of increasingly cranky regulators. Loan classification criteria have become more strict. Suspect classes of borrowers are being given less and less of the benefit of the doubt. Auditors and regulators have brought the hammer down in a fairly major way. After all this, if a loan needed to have been written down, it’s been written down. And as far as Roubini’s talk about “forbearance,” goes, if you talk to a banker lately, he’ll tell you that’s the last thing on regulators’ minds.

(For that matter, if Roubini really believes the banking industry is still carrying big chunks of assets on its balance sheet at hugely inflated prices, he can’t possibly believe his own economic forecasts. Rather, he still ought to be expecting that the roof is about to cave in.) 

Similarly, Roubini tells Forbes “the housing sector is double dipping,” even though, elsewhere, he admits that he thinks the market is close to a bottom. And he calls for “an across-the-board reduction of [delinquent consumers’ debt] burden to restructure just the face value of [their] mortgages.” So every delinquent borrower should get an automatic loan modification.

Where does he get this stuff? Can you imagine the trigger of defaults that would occur if the banking industry (whether induced to by the government or not) unilaterally reduced loan principal owed by their delinquent borrowers? There wouldn’t be a current mortgage left anywhere in the country. It would be a disaster. 

I understand that scary predictions and over-the-top policy prescriptions are part of the Roubini brand. Nouriel wouldn’t be Nouriel without them. But he might at least keep them consistent with his official forecast. Trust me, if the predicament of the U.S. consumer is so dire that the only way out is an automatic loan mod to every delinquent borrower in the country, the economy ain’t growing by 2.7% this year. As for the rest of Roubini’s flamboyant statements, I suspect he’s just making ‘em up.

What do you think? Let me know!

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No Banker Left Behind Posted On 2/15/2011 7:10:37 PM

TB---Why does NR say such "wacky stuff"? Let's go to Monday, January 31st, 2011, 4:25 pm For 2011, 10 of the 11 banks that have closed so far showed bad commercial real estate loans taking the lion's share of the distressed loan book. In six of those cases, losses on bad construction loans made up more than half of the bank's nonperfoming loans. According to Trepp Analytics, CRE loans comprised $600 million, or 82% of the $732 million in nonperforming loans. For the past two years, lenders followed a trend of refinancing the terms of the loan, in a strategy called "extend and pretend." The rate of delinquencies within commercial mortgage-backed securities topped 9% for the first time in January although the number of delinquent loans fell for the third month in a row, according to Moody's Investors Service. So, TB, while more of these loans are starting to be marked for what they are, do we really believe that all of these have seen the light of day? It reminds me of your initial and extended call on residential subprime loans: "contained and working their way through the python". Interestingly, while you rail against the idea of residential mortgage modifications (write downs), I don't sense the same indignation at modifications made in banks CRE portfolio's. Finally, please find a way, therapy perhaps, to get the Roubini's and the Whitney's of the world out of your head. Accept the fact that they were right and you were wrong in the largest banking issue/scandal of your analyst lifetime and move on. Also, It might do you good to restore some skepticism into your analysis and writing so you can stop sounding like a shill for the banking industry.

Hoping for up Posted On 2/16/2011 9:46:54 AM

Economic forecasts are only as good as the underlying data and assumptions. Accordingly, multiple data sources and analysis should be considered before acting on a single source’s recommendations. An alternative economic consumer forecasts, including country, regional and city data is available at:

Ole Holsti Posted On 2/16/2011 10:16:37 AM

I am still awaiting your current take on First Marblehead.

Chip Gjertsen /Ga Posted On 2/16/2011 10:23:56 AM

Professor Roubini does provide a counterpoint to your positions. However, he , like many other academics that popular media presents , is beginning to show signs of mission creep in his commentaries and forecasts. The individuals who moderate the interviews he provides are just not agile enough to grab every inconsistency in his comments. It is difficult to do that in real time. I would anticipate the media will soon , if not already , migrate to what you could consider almost cheerful commentaries related to economic forecasts. NR will begin to provide his media fans more and more elastic forecasts so he can keep his chair at the table. Re-loan comments below, agree. The masquerade ball continues .

Michael Shulman Posted On 2/16/2011 12:17:18 PM

Yes Roubini is right about toxic assets. The dodgy stuff is off balance sheet, is not audited and is being purposely overlooked by regulators as the banks continue a five to seven year path of truly healing. Look at their off balance sheet assets

Southwest Pilgrim Posted On 2/16/2011 12:27:05 PM

Wasn't the same skepticism directed at you back in your "break-up-Citi" days? regards, SWP

ACEMAN Posted On 2/16/2011 12:28:31 PM

It's all very simple: Roubini thinks of himself as being right all the time--until he's wrong, then he's right again the next day. I call it the "economics of personal recovery." In effect, if you are always right in your mind, you can't be wrong!

jerele Posted On 2/16/2011 1:18:02 PM

Tom, thanks for your excellent commentaries on the banks. Yes the banks failed on their underwriting standards and the regulators waived on their responsibilities but there are way too many economic experts,aledged, in this country that don't know what they are talking about. What really concerns me as a retired banker is that we are turning the commercial banks into utillities. Thanks for restarting the daily links.

Rollfast Posted On 2/16/2011 2:05:41 PM

There are four types of consumer or housing real estate assets on the books of banks. (not including loans to developers) 1. OREO (Other Real Estate Owned) Banks are required to have two independent appraisals on their books and to write down the carrying value of those assets to the lowest appraisal amount. They are expected to sell the asset within 5 years. But if it not sold within five years than they take another five years. 2. Non-delinquent real estate mortgages-It would be true that the value of the property may be less than the outstanding mortgage amount but the bank should not be required to reduce the outstanding loan. I'm certain there probably are FDIC regulators who viewed such loans as problems and are forcing the bankers to increasing the loan loss reserve which is a little different than reducing the carrying value of the asset. This action taken by the regulators makes no sense. It has caused the bank to take hits against the capital account that may be unrealistic. 3. Mild delinquent Real Estate Mortgages-I'm reasonably certain that the bulk of these assets are inflated but why should they automatically be written down? Loans were extended to individuals who are responsible for repayment from income and not from the sale of the collateral. 4. Substantially Delinquent Real Estate Mortgages-(180 days or more and no contact with borrower) Appears that these loans should be marked to market but might not have. 5. Mortgage Back Securities: I believe most of problem MBS have been written down. Conclusion: There are banks, I'm sure, that are not writing down delinquent loans that really should be written down. Instead, they are increasing the banks Loan Loss Reserve but not equal to decline in value of the real estate securing the loan.

vg Posted On 2/17/2011 5:47:08 AM

the given policy of Obama admin has in spirit and content nationalised the financial systems including all the major banks and has left the system wear a label of capitalism. Whatever you may say, Noubini has and had it right but was politically singaled out in the media as Dr Doom. Anything can be managed with cooked books for whatever long Fed determin it to be the correct time frame.

rs Posted On 2/18/2011 12:31:28 AM

i got a good laugh out of this post

nouriel Posted On 2/22/2011 1:56:17 PM

Nouriel smokes too much funny stuff from the NYU student commisary
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