Housing Doom

Here is Housing Doom’s third installment of our unauthorized annotated transcript of the American Enterprise Institute’s September 30, 2008 seminar "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?" [1] This is the presentation by Nouriel Roubini.

Highlights

• "… there’s a growing recognition that this was not just a subprime mortgage problem …"
• "… 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. "
• "… the $1 trillion number at this point is not the ceiling, it’s just barely a floor …"
• "… currently financial markets are dysfunctional. Fundamentals don’t matter, valuations don’t matter, it’s just flow."
• "… And even a small tiny island like Iceland can have systemic effects on asset prices, let alone if you have a blowup of Hungary, or Argentina, or Korea, or other economies."

Nouriel Roubini: [23:34] Well, Desmond called it very well, I think many aspects of why things are getting worse rather than better in the housing market, and I share his outlook and pessimism. I would like to elaborate on the broader picture about what’s happening in the economy and the financial markets.

I’ve been saying for a while this will be the worst financial crisis the US has experienced since the Great Depression and it looks like the worst one. I mean I don’t think there’s anything that’s happened since the Great Depression looks so severe. Of course 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, I mean what does happen in the last few months is really quite unbelievable, every other week another major financial institution going belly up.

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Here is Housing Doom’s second installment of our unauthorized annotated transcript of the American Enterprise Institute’s September 30, 2008 seminar "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?" [1] This is the presentation by AEI Fellow Desmond Lachman. He made use of a slide deck [2] and about three weeks after the event added newspaper articles to the site that he had written on the subjects of the future of banking regulation [3] and prospects for world-wide deflation.[4] The event site has both a video and an audio recording of the seminar.  No official transcript yet exists, but AEI has recently added a summary.[5]

Highlights

• "This is almost a once in a hundred year kind of event that is very likely to crush growth."
• "It looks to me as if it’s baked in the cake that you’re going to be getting the recession, rising unemployment, and that’s not too good for house markets. "
• "… the fact that the Fed is reducing interest rates to 1 percent in my view is neither here nor there."
• "… So you get somewhat in a vicious cycle, and that’s the reason why I think that you’ve got to get some sort of intervention to stop it."
• "What we’re going to need is we’re going to need stabilizing of the housing market through unorthodox means, coupled with a massive fiscal stimulus package, coupled with monetary policy accomodation, and then we might have a chance …"

Desmond Lachman: [12:38] Thank you very much Alex, and thanks once again for arranging this, and I really have to give you credit again, you and Chris, for having foreseen this as long ago as March of 2007. [slide 1 -- refer [2] below] You saw this coming in a big way and I recall at that time Ben Bernanke was just beginning to figure out that there might be a minor problem with subprime mortgages.

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Housing Doom is pleased to present the first installment of our unauthorized annotated transcript of the American Enterprise Institute’s September 30, 2008 seminar "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?" [1] This is the introduction by session moderator Alex Pollock. It uses a short slide deck.[2] The event site has numerous resources, including both an audio and a video recording of the 2 hour proceedings. There is as yet no official transcript.

Highlights

• "… this panel has previously brought you notable insights into, and accurate pessimistic forecasts of the problems of what happens when you have the collapse of a really big financial bubble …"
• "… so that would suggest about another 10 percent — that is 10 percent of the peak prices — to go."
• "So this is the institutional equivalent of putting your currency in the mattress."
• "… and they [the Federal Reserve Banks] have run their leverage up from 26 to 42 times."

Alex Pollock: [slide 1 -- refer [2] below] [00:00] … and welcome to the deflating mortgage and housing bubble Roman Numeral IV in our series.[1] [3] [4] [5] I’m Alex Pollock, a Resident Fellow at the American Enterprise Institute, and we have the same outstanding panel that we have previously had for our deflating bubble series, which by the way we fully intend to continue next Spring with deflating bubble Roman Numeral V [laughter] because this will still be going on by the Spring.

Now this panel has previously brought you notable insights into, and accurate pessimistic forecasts of the problems of what happens when you have the collapse of a really big financial bubble, which we had of course centered on mortgages but by no means limited to mortgages.

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