[Video] Nouriel Roubini: Worst yet to come; the losses would be at least $1 trillion

Video courtesy of YouTube
I summarize from the annotated transcript of Nouriel Roubini’s talk at the American Enterprise Institute’s September 30, 2008 seminar "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?". The transcript was just published in RGE Monitor on November 18, 2008.

You can also download the video above in *.MP4 format by Clicking on this link.

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. Something that what does happen in the last few months is really quite unbelievable, every other week another major financial institution going belly up.

The problem is not just a subprime mortgage meltdown anymore, but there are much more generalized asset bubble and credit bubble in the economy.

They issued a huge amount of junk bonds and corporate default rates that had been very very low, for the last couple of years, are going to be surging in a major way, and once this major surge of corporate defaults is going to occur this is other huge time bomb of the CDS market where about $55 trillion of nominal protection has been sold against an outstanding stock of only $6 trillion of corporate bonds.

Roubini predicted that the losses would be at least $1 trillion, and more likely close to $2 trillion, while IMF predicted $945 billion of losses, but then the estimate was revised to $1.4 trillion. Goldman Sachs predicted $1.1 trillion then John Paulson said $1.3 trillion. Most recently Bridgewater Associates said that the losses are going to be $1.6 trillion.

Roubini said that we’re not at the bottom of the financial and banking crisis, and certainly we’re not at the bottom of the severe economic crisis. So he’s quite still pessimistic looking ahead. He thinks that the capital needs of the financial system are going to be much more than the $250 billion, instead of the idea of injecting only $250 billion into the banking system.

Related Posts :

Total credit losses of the financial sectors are almost $1T

Sources :

1. YouTube: Roubini: Worst yet to come, November 19, 2008
2. Nouriel Roubini's Global EconoMonitor: Transcript of Talk at AEI seminar on the "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?", November 18, 2008

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