Man Who Predicted 2008 Financial Crisis Says Today's Sell-off Is 'Just The Next Stage'
The man who predicted the bursting of the housing bubble as well as 2008's economic collapse says that what happened in the markets around the world today is just the next stage in the financial crisis.
"The first stage was this massive re-leveraging of the private sector that led to the financial crisis and which has responded now with a massive re-leveraging of public sectors with budget deficits of the order of 10 percent," Nouriel Roubini aka Dr. Doom told CNBC's Maria Bartiromo.
"So I think that the markets are realizing that we have socialized a lot of the private losses with unsustainable fiscal deficits."
He believes the bond markets in parts of Europe seriously began realizing the depth of the problem today cautioning, "And soon enough they're going to wake up in the United States" (video follows with partial transcript and commentary):
MARIA BARTIROMO, CNBC: Let me bring in Nouriel Roubini, he is on the telephone right now. He had a report out earlier about the implication of Greece, and really looking at the United States in terms of the debt load there and, and comparing the two. Nouriel, thank you for joining us. Give us your sense of what's behind this 3 ½ percent sell-off in the markets today.
NOURIEL ROUBINI: Well, my interpretation is that now there is a rise of sovereign risk in a number of advanced economies. There's Greece, there's Portugal, and Spain. And this is just the next stage of this financial crisis of the last few years. The first stage was this massive re-leveraging of the private sector that led to the financial crisis and which has responded now with a massive re-leveraging of public sectors with budget deficits of the order of 10 percent, and I imagine OCD expecting that public debt is going to double as a share of GDP in all advanced economies. So I think that the markets are realizing that we have socialized a lot of the private losses with unsustainable fiscal deficits. Today the bond market which (?) have woken up in Greece, in Spain, in Portugal, in U.K., in Ireland in Iceland. And soon enough they're going to wake up in the United States.
For those unfamiliar with Roubini, he has gotten the name "Dr. Doom" for his fabulous call in the middle part of the last decade when he said that housing prices were exploding in a speculative frenzy that would eventually sink the entire economy.
As the New York Times wrote in August 2008:
With this in mind, when Roubini speaks, people should listen.
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.