1150 Seventeenth Street, N.W., Washington, D.C. 20036
Video of this event will be livestreamed online at http://american.com/archive/2010/october/living-in-the-post-bubble-world-whats-next
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Americans are living in the wake of the great credit bubble of the twenty-first century. They have experienced the crisis of its collapse, massive increases
Download Audio as MP3 in government intervention and debt, and now more uncertainty. What's next? Are we in for a long slog, or will the economy rebound? What will happen to housing prices, mortgage defaults, commercial real estate, the banking system, and post-bubble Europe? Will we have defaults on sovereign debt? Deflation? How big will the Fed's balance sheet get? What steps should be taken now? These and related questions will be discussed by our panel of economic and financial experts.
|2:00||Panelists:||Mark Fogarty, National Mortgage News|
|Desmond Lachman, AEI|
|John H. Makin, AEI|
|R. Christopher Whalen, Institutional Risk Analytics|
|Thomas Zimmerman, UBS Investment Bank
|Nouriel Roubini, New York University
|Moderator:||Alex J. Pollock, AEI|
WASHINGTON, OCTOBER 6, 2010--Seven experts gathered on Wednesday to discuss what to expect in the post-bubble world and policy measures to resolve lingering problems. AEI resident fellow Alex J. Pollock gave an overview of the current situation, elaborating on the role of central banks as the managers of the "banking club" and on the observation that credit markets today are bimodal--bond markets are booming, while bank credit is constricted. Desmond Lachman, also a resident fellow at AEI, commented on the short- and long-term impact of the bubble, highlighting four immediate risks: a U.S. double-dip recession, the unraveling of the euro, the weak Japanese economy, and China potentially slowing its economy down due to its property bubble. He contended that these risks, combined, should make one more bearish about the global economic and financial situation. Thomas Zimmerman, managing director of UBS Investment Bank, examined the U.S. mortgage market in greater detail. He noted that the housing market is getting worse and that, given the uncertain outcome of the 2010 midterm elections, the government's next steps, if any, are also unpredictable. Nouriel Roubini, an economics professor at New York University, expounded on the fairly high risk of a double-dip recession, emphasizing that weak economic growth, such as the United States has been experiencing, would feel like a recession even if not one theoretically. He also stressed that governments are running out of policy bullets and that to reduce debt we must allow some debt to default. R. Christopher Whalen, cofounder and managing director of Institutional Risk Analytics, argued that the cash-flow problems banks have been facing are unsustainable and that restructuring will be required in the banking system. Mark Fogarty, editor of National Mortgage News, expanded on the trends in mortgage origination and renegotiation, what would happen in a double-dip recession, the shape of a post-Dodd-Frank landscape, and the future of Fannie Mae and Freddie Mac. Finally, John H. Makin, resident scholar at AEI, evaluated the steps the Federal Reserve has taken with quantitative easing and price-level targeting, adding that while these steps were necessary, they were not sufficient to resolve the problems faced in a post-bubble world; other major central banks will also need to undertake quantitative easing.
- "Three years ago, one of the reasons we had a crisis in the world was because the subprime Alt-A markets melted down dramatically. What happened was [that] they didn't really melt down, those losses didn't occur, those people weren't kicked out of their houses, it's just that we knew what was going to happen, two or three or four years later. . . . All that money [that] was lost in securities got written down. Now we're seeing what that write-down is all about."
--Thomas Zimmerman, Managing Director, UBS Investment Bank
- "We started with crises driven by private debts and leverage. Then we socialized the losses and now we have public debts and deficits. And in the countries like in Europe, where the solvency is now distressed, . . . we have supranationals that are bailing out the national authorities--the IMF [International Monetary Fund], the eurozone, the EU [European Union]. Now, you are kicking the can down the road. There is not going to be anybody coming from Mars to bail out the IMF, or the eurozone, right? . . . The problem is when there is too much debt, you have to reduce the debt. You have to default, you have to reduce the debt . . . of the financial system, of the governments that are insolvent."
--Nouriel Roubini, Professor of Economics, New York University
- "Is the subprime crisis over? No. What we have done with HAMP [Home Affordable Modification Program], with modification, with forbearance, with a lot of other devices in the banking industry, is we've bought time. . . . But there is hope, and the hope lies in restructuring. We have to get a new set of political leadership in this country who are willing to start telling people the truth again, stop the big lie, and we have to start restructuring, and whoever does that first in the global marketplace is going to be ahead of the game. And I think the United States can do that."
--R. Christopher Whalen, Cofounder and Managing Director, Institutional Risk Analytics
Mark Fogarty is editorial director of the Mortgage Group at SourceMedia in New York and editor of National Mortgage News and Mortgage Servicing News. In addition, he has written financial stories for Euromoney, American Banker, the Chicago Tribune, and the Miami Herald, among other publications. He has covered the mortgage industry for the past twenty-six years (or approximately four boom-and-bust cycles). National Mortgage News, under his direction, also won the George Polk Award for Financial Journalism.
Desmond Lachman joined AEI as a resident fellow after serving as a managing director and chief emerging-market economic strategist at Salomon Smith Barney. He previously was deputy director in the International Monetary Fund's Policy and Review Department and was active in staff formulation of the organization's policies toward emerging markets. Mr. Lachman has written on topics such as economic policy, fund arrangements, monetary reform, import restrictions, and exchange rates. At AEI, he studies major emerging-market economies and the role of multilateral lending institutions.
John H. Makin is a resident scholar at AEI and a principal at Caxton Associates. Mr. Makin has been an adviser to numerous U.S. government agencies, the Federal Reserve System, and the Bank of Japan. He is a member of the Council on Foreign Relations and the Economic Club of New York. Mr. Makin joined AEI in 1984 after a distinguished career in academic research. He is the author of numerous books and articles on financial, monetary, and fiscal policy, and he writes AEI's monthly Economic Outlook.
Nouriel Roubini is an internationally known expert in the field of international macroeconomics. He is a professor of economics at New York University's Stern School of Business and the cofounder and chairman of Roubini Global Economics LLC, an innovative economic and geostrategic information service that was named one of the best economics websites by BusinessWeek, Forbes, the Wall Street Journal, and the Economist. Mr. Roubini has served as a senior adviser to the President's Council of Economic Advisers and the U.S. Treasury Department, has published numerous policy papers and books on international macroeconomic issues, and is regularly cited as an authority in the media. He has also been a faculty member at Yale University.
R. Christopher Whalen is the cofounder and managing director of Institutional Risk Analytics, where he is responsible for sales, business development, and editorial activities. He has worked as an investment banker, research analyst, and journalist for more than two decades and has covered a variety of industry sectors, including technology and financial institutions. In addition to editing the Institutional Risk Analyst newsletter, Mr. Whalen contributes regularly to publications such as Barron's, the International Economy, and American Banker. He is a member of Professional Risk Managers' International Association, volunteers as a regional director of the association's Washington, D.C., chapter, and chairs its speakers committee. He is also a fellow of the Networks Financial Institute at Indiana State University.
Thomas Zimmerman is a managing director at UBS AG. He has been involved in managing the firm's research efforts on asset-backed and mortgage-backed securities for the past eleven years. Before joining UBS, Mr. Zimmerman managed the research groups on asset-backed and mortgage-backed securities at Prudential Securities and Chemical Bank. Mr. Zimmerman started his research career as a vice president in the mortgage-research department at Salomon Brothers. His research has appeared in numerous fixed-income publications and industry reference works. He was a member of the UBS research team that consistently ranked first in the annual Institutional Investor survey of fixed-income analysts.
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