Thanks For the Uplifting Segment, Dr. Nouriel Roubini

Dr. Nouriel Roubini—aka “Dr. Doom”—predicted in 2006 the financial calamity that befell the U.S. and much of the world in 2008. His new book is called Crisis Economics, and he stopped by the studio today to scare the hell out of us, both with his accent and his ominous prophecies.

The so-called “Great Recession” that began almost two years ago was not, as Roubini, a professor of Economics at New York University, put it, a “black swan” event.

“Until the 18th century, we thought there were only white swans, until we found a black swan in Australia,” he explained. “So a black swan is meant to be something random that comes out of nowhere, totally infrequent, that takes us by surprise, like a perfect storm.”

Financial crises are entirely predictable, he posited, because of the build up of vulnerabilities like excessive debt, leveraging, risk-taking, poor risk management, and poor regulation. “In that case,” Roubini added, “I call them white swans.”

Back in 2006, Roubini very publicly stated that there would be a housing bust; home prices would fall at least 20 percent, he said, and stock sales would fall by half, leading to an economic and financial crisis, followed by a global recession. He was met with some skepticism, until things turned out even worse than he expected: home prices fell by 30 percent, and sales of stock fell by 80.

“Unfortunately, I was too optimistic,” he said.

Before everything went into the crapper, Roubini said, “We were living in a bubble. U.S. consumers were spending more than their income, using their homes as an ATM machine.” Wall Street made “gazillions of profits,” as he put it, and the ratings agencies were making a lot of money too.

“Whenever there is a bubble, people live in a bubble,” said Roubini. “There is irrational exuberance, and they lose sense of reality.”

Banks were so willing to lend unqualified lenders exorbitant amounts of money, he explained, because the banks pawned the risk off to larger investment banks, which, in turn, transferred that risk to investors.

“Everybody in the securitization food chain was making a fee transferring the risk someplace else,” Roubini said.

So if all the banks and investment banks were getting rid of their own risk, Imus wondered, “Why’d we have to bail them out?” Roubini had no real answer, other than to express a frustration common among Americans.

“We privatized their gains in the good times, and now we’ve socialized the losses in bad times,” he said, adding, “Now we have huge budget deficits, in part because we’ve privatized these losses and put them on the balance sheet of the government.”

He fears that what happened recently in countries like Greece and Portugal, where governments have all but defaulted on gigantic deficits, will bleed over to the U.K, the U.S., China, and Japan.

“Either we’re going to control spending and raise revenue toward the budget deficit,” he said about how to solve the crisis, “Or inflate it away.”

As for whose fault this was (because somebody must always be blamed on this show), Roubini cited Wall Street; regulators; the Fed; ratings agencies; and politicians on both sides of the aisle. And though it is helpful, the new financial regulatory reform bill passed last week in the Senate doesn’t go as far as he’d like it to.

“It’s too little too late, and it has been diluted by Wall Street and the lobbies,” said Roubini, who foresees the possibility of a global “double dip” recession. “There may be another perfect storm ahead of us in the next year or so.”

Then, this mysterious man had some explaining to do: are two Jay-Z songs really among his five favorites? “I listen to everything from opera to hip-hip to rap,” he told Imus. “I’m not as familiar with country music.”

In that case, Doc, stick to economics.

-Julie Kanfer