Roubini: we are paying the consequences....

Bear Roubini
Economist and founder of rgemonitor.com Nouriel Roubini showed no mercy on his audience: “The tsunami of defaults is only just starting,” he said. Hundreds of hedge funds will go bust. We are reaching a point when systemic danger becomes larger rather than smaller – we are at panic point, under the falling knife. “I would not be surprised if some Western stock markets were to close for a few days".

There will be severe recession in the U.S. and in Europe and this will be the worst in decades. $600bln minimum would be needed to save credit markets. Financial markets are becoming completely “dysfunctional”.

To illustrate the systemic collapse, even a small country such as Iceland (who borrowed 12 times its GDP’s worth) can have significant effect on the world economy. Emerging economies are on the tipping point too.

Everyone has been in favour of financial innovation which has lead to more complexity in the markets and more systemic risk; now we are paying the consequences.

“The only light at the end of the tunnel is that it will come after the financial train wreck. That’s my only assessment,” he said. Roubini also warned about future geopolitical consequences and the beginning of the decline of the American empire… he did work for the White House Council of Economic Advisors and for the U.S. Treasury Department after all.

Fair Value: misunderstood concept
Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Bernanke has recently remarked on fair value, saying that we “need to make a distinction between fire-sale prices and hold-to-maturity prices.”

There have been various amendments and clarifications on fair value accounting from the U.S. and the U.K. accounting bodies, as well as confusions within the financial industry and misunderstandings from the press. Max Ziff of London’s Holihan Lokey, an investment banking services firm, sought to clarify the matter and put forward the following conclusions:

- Illiquid assets are both a threat and an opportunity.
- Either way, appropriate valuing procedures are critical.
- The trends towards institutional investments will only reinforce this.
- A return to cost accounting is not a solution for banks or investment funds.
- FAS 157-3 is a constructive step forward but remains a stop gap.
- For hedge funds, the debate is not just about accounting but also about how the hedge fund structure adjusts going forward.
- When it comes to disclosure, think “full” and then some.
- Use volatility as the best indicator and when mark-to-m......................

Source:
Roubini: we are paying the consequences....