The Economist Who Accurately Predicted The 2008 Crash

By James Donahue

It was on September 7, 2006, that economics professor Nouriel Roubini, of New York University, accurately predicted the economic crisis that struck the nation two years later.

 Speaking before a gathering of economists at the International Monetary Fund, Roubini stunned the audience by what he had to say. Unfortunately, few in that crowd took him seriously.

Roubini turned out to be a prophet in his own time. As a New York Times story put it, he warned that the United States was about to “face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and ultimately, a deep recession.”

Not only was he accurate on all of these counts, Roubini went on to describe his vision of a “bleak sequence of events,” the Times story said. These included “homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.”

He said the crisis would cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

These were harsh predictions at a time when other economists present at the meeting were quick to rebut what Roubini had to say. Economist Anirvan Banerji responded to the Roubini message, explaining that his dire predictions failed to make use of the mathematical models that predicted economic stability. In other words, Roubini was dismissed by his colleagues as a “career naysayer.”

Within months, however, Roubini was vindicated. As the entire world economic system began to fall apart, just as he predicted, the man must have experienced mixed emotions from his position at a school of higher learning. While his forecast was turning out to be frighteningly accurate, what was happening must have seemed nightmarish, even to Roubini.

His predictions of doom and gloom did not end with the 2006 conference. After subprime lenders began going bankrupt, hedge funds began failing and the stock market plunged, the economists in that circle began taking Roubini more seriously. As the Federal Reserve began taking steps to head off the panic, the value of the dollar dropped and unemployment started making headlines, optimists began declaring the worst of the crisis was over. But Roubini was still warning of more trouble ahead. He   said he believed some of the venerable investment firms on Wall Street were about to fail. And six weeks later, Bear Sterns collapsed.

Needless to say, Roubini has become a major voice in economic circles. He was the seer who saw it coming when no one else did. Consequently, he is being invited to speak to economic groups all over the world and h is word is being taken seriously.

So what does Roubini see for the future? He says the “bailouts” designed to save the banking systems from going into total collapse have added “hundreds of billions of dollars to an already gargantuan federal debt and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations.”

He warns that the United States has turned to China, Russia and the Middle Eastern states to borrow the money needed to keep things afloat. But “these are rivals, not allies.”

Consequently, Roubini warns, he believes the United States will eventually emerge from the crisis “a different nation with a different place in the world. This might be the beginning of the end of the American empire,” he said.