Intellectual pin-up Nouriel Roubini has breakfast with the FT
By Gillian Tett
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Granted, until the financial crisis started three years ago, he had spent most of his career analysing economics and writing books with titles such as Political Cycles and the Macroeconomy (1997) or New International Financial Architecture (co-editor, 2005). He was also responsible for delivering a series of speeches on the fragility of the banking world so dour that they earned him the monicker “Doctor Doom”.
But in 2007, all this changed unexpectedly. The financial crisis exploded and, almost overnight it seemed, the world realised that Roubini was one of the few economists who had actually predicted the looming banking collapse. Today policymakers around the world hang on his words, journalists flock to his speeches to hear his latest predictions and clients pay big money to receive analysis from his consultancy company, Roubini Global Economics.
Granted, until the financial crisis started three years ago, he had spent most of his career analysing economics and writing books with titles such as Political Cycles and the Macroeconomy (1997) or New International Financial Architecture (co-editor, 2005). He was also responsible for delivering a series of speeches on the fragility of the banking world so dour that they earned him the monicker “Doctor Doom”.
But in 2007, all this changed unexpectedly. The financial crisis exploded and, almost overnight it seemed, the world realised that Roubini was one of the few economists who had actually predicted the looming banking collapse. Today policymakers around the world hang on his words, journalists flock to his speeches to hear his latest predictions and clients pay big money to receive analysis from his consultancy company, Roubini Global Economics.
...
I have been an economist for 20 years!”
Indignantly, he runs through the details of his career. It is unusual. Born in Istanbul in 1959 to Iranian Jewish parents, he spent his early years in Iran, before moving to Italy, where he attended school and university. He subsequently moved to the US and Harvard, where he did a PhD in economics, then taught at Yale and in New York. Roubini, who speaks Italian, Hebrew and Farsi, says he finally felt he had arrived in the US “about 15 years ago, when I started dreaming in English”. During this period he also did stints at the International Monetary Fund, Federal Reserve, World Bank, the US White House Council of Economic Advisers and the Treasury department, before setting up his own consultancy firm.
Hardly the cv of a nobody, it’s true. But Roubini was still far from being a household name when, in the autumn of 2006, with the world economy and credit markets booming, he gave a big speech to the IMF warning that 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”, along with “homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unravelling worldwide and the global financial system shuddering to a halt”. It was a bold call; so much so that many policymakers and economists thought Roubini was slightly mad.
Indeed, when Roubini attended the World Economic Forum meeting in Davos in January 2007 to make similar prophesies, his warnings were widely dismissed. It was at this rarefied Swiss mountain resort that I first encountered him and I remember it very well. In the preceding months I had also started to write about the dangers of complex finance (albeit far less eloquently and dramatically than Roubini) and those pieces sparked criticism from some of the luminaries assembled at Davos, who accused me of being “alarmist”. Though we had never met before – and have barely talked since – at one sun-dappled lunch in a stuffy Swiss hotel Roubini forcefully defended my articles. I tell him I was grateful; vocal Cassandras were very thin on the ground back then.
“I remember that,” Roubini laughs. He then recalls, with irritation, a column written by Michael Lewis, author of the acclaimed Wall Street study Liar’s Poker (1989) as well as the recently published study The Big Short (2009), during that Davos meeting, which labelled Cassandras such as Roubini as “wimps” and “ninnies”. “It is amazing how some people have changed their views,” he says, adding acerbically that “there is a lot of Monday morning quarterbacking” now.
Why did the banking world spin out of control in 2007? Roubini has co-authored with Stephen Mihm, a professor of economic history, a book about the banking collapse, Crisis Economics, which seeks to answer this question and suggest what can be done to put it right. At first glance it covers similar ground to all the other “crunch lit” books now being churned out by economists. What sets this one apart, however, is that unlike almost every other economist – exceptions include William White and Claudio Borio of the Bank for International Settlements – Roubini can claim to have got things right before disaster struck. So what made him so sure he was right, I ask, as our understated breakfast arrives on the low table next to the leather sofa. The only splash of colour is a vast strawberry adorning my power shake.
“Having spent 10 years studying emerging markets, I know that you have patterns repeated over and over again,” he explains. “A bubble is like a fire which needs oxygen to continue ... when you see there is no oxygen, things change.” More specifically, by the summer of 2006 Roubini could see that the housing market had peaked. That left him convinced that the system was about to unravel, because there was so much mortgage debt.
He has continued to issue warnings since the crash. In early 2009, he argued that the banking crisis might not be finished. He also suggested that there was a 20 per cent chance of a double-dip recession, because American growth would be so weak. In fact, the US economy has rebounded faster than he expected and bank share prices have risen too. All of which leaves some rivals gloating that Roubini was simply lucky with his 2006 call. He retorts, though, that it is still too early to conclude that the global economy is really on a recovery track. And at least one recent call has been correct: for the past year he has repeatedly warned about dangers stalking sovereign debt. In particular, he thinks that the dramas in Greece reflect a bigger problem facing the western world, since governments appear to lack the stomach to tackle spiralling government debt.
“What really worries me about the US right now is that there is this [political] gridlock,” he says, arguing that this prevents the government from taking the necessary tough decisions. “The UK has the same problem. There is no real willingness to have spending cuts or tax increases.” As a result, “there will be temptation to keep monetising the fiscal deficit”, which will ultimately produce inflation.
To combat those risks, Roubini wants policymakers to co-operate across party lines and to break out of their old ideological boxes of “left” and “right”. “I grew up in Italy in the 1960s and 1970s and it was a period of a lot of social turmoil, when even young teenagers were engaged in politics. I was slightly more left of centre then,” he says, stirring sugar into his latte, making elegant swirls of brown and white. These days he is “centrist” on economic issues, since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals – but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called “Austrian school” of economics. “There is this big debate between the Keynesian school and the Austrian school. But I am pragmatic and eclectic. It is all about timing.”
So where would he suggest people put their money now? What does he do? He looks coy. “I have never in my life bought an individual stock, bond or currency. I have my own 401k [pension and savings pot] in a passive fund – 100 per cent equity investment, half US, half non-US. All the extra income I have received in the past few years has gone into cash. At some point I will move that into riskier assets, but not now.” This caution seems typical of Doctor Doom, I suggest. He disagrees. “Dr Doom as a nickname was cute and I did like it for a while but what I keep saying now is that I am Dr Realist.”
In other words, Roubini now wants to be known as a sage who can proffer constructive advice, instead of predicting disaster. Indeed, on the day we meet he has written a column for the FT urging Europe to let Greece restructure its debt. And he has just returned from Washington, where he met a group of senior western finance ministers and central bankers. “What is important to me is that when I write something, people listen to me. I provide my wisdom to people, whether they agree or not.”
...
I have been an economist for 20 years!”
Indignantly, he runs through the details of his career. It is unusual. Born in Istanbul in 1959 to Iranian Jewish parents, he spent his early years in Iran, before moving to Italy, where he attended school and university. He subsequently moved to the US and Harvard, where he did a PhD in economics, then taught at Yale and in New York. Roubini, who speaks Italian, Hebrew and Farsi, says he finally felt he had arrived in the US “about 15 years ago, when I started dreaming in English”. During this period he also did stints at the International Monetary Fund, Federal Reserve, World Bank, the US White House Council of Economic Advisers and the Treasury department, before setting up his own consultancy firm.
Hardly the cv of a nobody, it’s true. But Roubini was still far from being a household name when, in the autumn of 2006, with the world economy and credit markets booming, he gave a big speech to the IMF warning that 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”, along with “homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unravelling worldwide and the global financial system shuddering to a halt”. It was a bold call; so much so that many policymakers and economists thought Roubini was slightly mad.
Indeed, when Roubini attended the World Economic Forum meeting in Davos in January 2007 to make similar prophesies, his warnings were widely dismissed. It was at this rarefied Swiss mountain resort that I first encountered him and I remember it very well. In the preceding months I had also started to write about the dangers of complex finance (albeit far less eloquently and dramatically than Roubini) and those pieces sparked criticism from some of the luminaries assembled at Davos, who accused me of being “alarmist”. Though we had never met before – and have barely talked since – at one sun-dappled lunch in a stuffy Swiss hotel Roubini forcefully defended my articles. I tell him I was grateful; vocal Cassandras were very thin on the ground back then.
“I remember that,” Roubini laughs. He then recalls, with irritation, a column written by Michael Lewis, author of the acclaimed Wall Street study Liar’s Poker (1989) as well as the recently published study The Big Short (2009), during that Davos meeting, which labelled Cassandras such as Roubini as “wimps” and “ninnies”. “It is amazing how some people have changed their views,” he says, adding acerbically that “there is a lot of Monday morning quarterbacking” now.
Why did the banking world spin out of control in 2007? Roubini has co-authored with Stephen Mihm, a professor of economic history, a book about the banking collapse, Crisis Economics, which seeks to answer this question and suggest what can be done to put it right. At first glance it covers similar ground to all the other “crunch lit” books now being churned out by economists. What sets this one apart, however, is that unlike almost every other economist – exceptions include William White and Claudio Borio of the Bank for International Settlements – Roubini can claim to have got things right before disaster struck. So what made him so sure he was right, I ask, as our understated breakfast arrives on the low table next to the leather sofa. The only splash of colour is a vast strawberry adorning my power shake.
“Having spent 10 years studying emerging markets, I know that you have patterns repeated over and over again,” he explains. “A bubble is like a fire which needs oxygen to continue ... when you see there is no oxygen, things change.” More specifically, by the summer of 2006 Roubini could see that the housing market had peaked. That left him convinced that the system was about to unravel, because there was so much mortgage debt.
He has continued to issue warnings since the crash. In early 2009, he argued that the banking crisis might not be finished. He also suggested that there was a 20 per cent chance of a double-dip recession, because American growth would be so weak. In fact, the US economy has rebounded faster than he expected and bank share prices have risen too. All of which leaves some rivals gloating that Roubini was simply lucky with his 2006 call. He retorts, though, that it is still too early to conclude that the global economy is really on a recovery track. And at least one recent call has been correct: for the past year he has repeatedly warned about dangers stalking sovereign debt. In particular, he thinks that the dramas in Greece reflect a bigger problem facing the western world, since governments appear to lack the stomach to tackle spiralling government debt.
“What really worries me about the US right now is that there is this [political] gridlock,” he says, arguing that this prevents the government from taking the necessary tough decisions. “The UK has the same problem. There is no real willingness to have spending cuts or tax increases.” As a result, “there will be temptation to keep monetising the fiscal deficit”, which will ultimately produce inflation.
To combat those risks, Roubini wants policymakers to co-operate across party lines and to break out of their old ideological boxes of “left” and “right”. “I grew up in Italy in the 1960s and 1970s and it was a period of a lot of social turmoil, when even young teenagers were engaged in politics. I was slightly more left of centre then,” he says, stirring sugar into his latte, making elegant swirls of brown and white. These days he is “centrist” on economic issues, since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals – but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called “Austrian school” of economics. “There is this big debate between the Keynesian school and the Austrian school. But I am pragmatic and eclectic. It is all about timing.”
So where would he suggest people put their money now? What does he do? He looks coy. “I have never in my life bought an individual stock, bond or currency. I have my own 401k [pension and savings pot] in a passive fund – 100 per cent equity investment, half US, half non-US. All the extra income I have received in the past few years has gone into cash. At some point I will move that into riskier assets, but not now.” This caution seems typical of Doctor Doom, I suggest. He disagrees. “Dr Doom as a nickname was cute and I did like it for a while but what I keep saying now is that I am Dr Realist.”
In other words, Roubini now wants to be known as a sage who can proffer constructive advice, instead of predicting disaster. Indeed, on the day we meet he has written a column for the FT urging Europe to let Greece restructure its debt. And he has just returned from Washington, where he met a group of senior western finance ministers and central bankers. “What is important to me is that when I write something, people listen to me. I provide my wisdom to people, whether they agree or not.”
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