Crisis Economics by Nouriel Roubini

¶ … Crisis Economics" by Nouriel Roubini

In a word, Nouriel Roubini's book, Crisis Economics: A Crash Course in the Future of Finance, which was co-authored with Steven Mihm, is radical. The book is largely about the current fiscal crisis that the United States finds itself in. However, the author makes a point to spend a considerable greater amount of time tending to potential solutions -- and measures to ensure that similar fiscal crises cannot proceed -- than giving a history lesson about the critical time that was probably at its worse in 2008. In doing so, he suitably demonstrates that this crisis is not a "freak event" (Sunderland, 2010). The vast majority of the notions posed by Roubini are certainly radical by most conservative standards that still govern America -- and particularly those that are directly responsible for its pecuniary practices and economic regulations. Yet what makes Roubini's viewpoint and radicalism all the more intriguing is the fact that quite clearly, as a cursory review of the events of the past decade demonstrate, these are far from pedestrian times. It is this acknowledgement of the dire situation that America finds itself in, which is both acknowledged by the author and implicit in much of his monetary analysis and economic advice, that calls for (quite deservingly) radical measures to cure an intense financial dilemma.

Despite the fact that Roubini's book is far from a general history lesson that recaps the diverse collapse of industries that largely contributed to what is a global crisis, no amount of astute observation on the subject could completely avoid recounting some of the most salient of those details -- if for no other reason than to explain and contextualize many of the curative proposals Roubini advocates. In doing so, the author evinces a palpable congratulatory tone, perhaps because he was one of the few economists who presaged these financial conditions. For the most part, however, this tone and its deserved vantage point help to punctuate Roubini's perspectives with an air of authority that allows readers to trust some of his more unconventional notions. And it is ultimately this viewpoint of the author's that is at the heart of his beliefs for a completely revised financial system of running the U.S. economy, as the following quotation demonstrates.

The crisis was less a function of sub-prime mortgages than of a sub-prime financial system. Thanks to everything from warped compensation structures to corrupt ratings agencies, the global financial system rotted from the inside out. The financial crisis merely ripped the sleek and shiny skin off what had become, over the years, a gangrenous mess (Roubini & Mihm, 2010, p. 2).

It is with this unapologetic perspective of the fundamental processes that were responsible for the downfall of the real estate market, the collapse of Wall Street, and the great banking panic that had to be bailed out by the Feds that Boudini recounts these events, and ultimately proposes his solutions.

What is most interesting about Crisis Economics: A Crash Course in the Future of Finance, and what is far from surprising, is the role that the author places the federal government in regarding the current recession. The housing market debacle and the ensuing Wall Street difficulties directly led to the enervating of many investment banks, which in turn had to be financially bailed out with federal intervention. Although the author may be somewhat hyperbolic in his assessment that doing so prevented an even worse depression on a worldwide scale, he details several noxious effects of this federal action: not the least of which were the attempt to stimulate the economy via more spending which had the effect of "deficit-enlarging" (Barrett, 2010).

It is therefore far from surprising that many of the reforms that the author posits directly involves federal regulations and changes to various aspects of the economic industry. One of the most eminent of these is in regards to the real estate collapse which, although it was intrinsically related to the dot com bust, was also heavily precipitated by what can be termed as greedy banks and bankers. In this regard, the author rightfully targets circumscription of the authority of the major agencies that are responsible for rating private credit which allowed banks to approve many mortgage situations with citizens that were tenuous, at best. The most efficacious way of doing so, particularly when one considers that most banks simply pay these agencies, which are primarily Fitch Ratings, Standards & Poor's, and Moody's Investor Services, Roubini asserts is to issue a removal of the agencies' certification by the Securities and Exchange Commission as "nationally recognized statistical rating organizations." This publicly blessed oligopoly, intended to maintain high standards, has only inhibited competition that would bring down the price of security-rating services (Barrett, 2010).

The commission was widely vilified for not playing a more active role in limiting the unscrupulous behavior of banks that lured investors into poor mortgage situations (no author, 2012)

Ultimately, Roudini proposes increasingly strident measures of accountability that financial institutions should hold themselves to. The author argues vigorously against a repeat of any sort of measures in which the federal government, using taxpayers hard earned money, has to accept the financial responsibility for a banks debts. And true to form, the author comes up with some fairly creative, if not unconventional solutions, for keeping banks more honest about their loans and the risks associated with them. In fact, one of the key points Roudini makes regarding banks is that there should be requirements in place that mandate that banks have some form of capital that is approximately commensurate with the amount of risk they incur with in terms of loans. The ramifications of fairly revolutionary measure would substantially reduce the amount of profit that financial institutions would gain from the loaning of their assets, and even require some of the larger financial conglomerates to disband and ultimately take accountability for any sort of risks associated with their banking practices. The general idea is that once such institutions had to incur a greater amount of responsibility and accountability for their own actions, they would not act as haphazardly as they did during the banking meltdown of 2008.