Sunday, 26 October 2008

An assessment from Nouriel Roubini

Here is a sober assessment of the present stage of the crisis by Nouriel Roubini:

Nouriel Roubini, 'Roubini sees crisis worsening, hurting emerging markets' (video), 23 October 2008

From 8:25 to 14:15 of the video Roubini talks about the causes of the crisis. He focuses again on the immediate causes that have been cited many times: the low-interest rate policy of the Fed from 2001 to 2004, the consequent take-off in increasingly risky consumer lending (not only mortages, but also car loans, credit cards etc.), the positive feedback between this lending and house price inflation, and the masking of its riskiness by repackaging and re-repackaging - all this leading to a gigantic and unsustainable credit/asset bubble that has now collapsed. He doesn't go any deeper into the causes.

On prognosis, one point he makes is that the present deleveraging process and accompanying destruction of the 'shadow banking system' can be expected to go on for a number of months yet.

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