Roubini: The Keys are in the Mail
What is up with Nouriel Roubini and ties? Larry Kudlow would never have him on looking like this. Just take the damn thing off, Nouriel. Fine by me.
He swung by Tech Ticker, where he predicted the housing market would bottom in 2010, and discusses Paulson’s options.
A further decline is housing prices is certain to bedevil Hank Paulson, and Roubini does not see the housing market getting better any time soon.
The economist believes U.S. home prices will ultimately fall 30% from their peak—vs. 18% to date according to the S&P Case-Shiller Index—“before bottoming out some point in 2010.”
In the interim, the negative wealth effect of declining home values and increase in “underwater” mortgages will lead to more Americans walking away from their homes. Such “jingle mail” threatens to ultimately cost $1 trillion in credit losses, wiping out 75% of the capital of U.S. financial institutions, Roubini warns.
It is that “disorderly” outcome Roubini says the government cannot afford to let happen. With “the charade” that Fannie and Freddie weren’t already government agencies over, he believes a nationalization of the 50% of mortgages not owned or guaranteed by Fannie and Freddie will be necessary, and the Frank-Dodd Bill is a small step down that road.
From Roubini’s view, nationalizing housing avoids the government having to nationalization the entire banking system, making it the lesser of two evils. Tech Ticker
Warning: This video is depressing.
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Nouriel also says the brokers are “toast”. Jimmy Cayne probably does not disagree.
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