Nouriel Roubini's analysis of the 2008 financial crisis and prevention measures

Crisis Economics by Nouriel Roubini

In his book titled "Crisis Economics" Nouriel Roubini skillfully unveils years before the red flags that would lead to the biggest financial crisis in the United States and in the world since the great depression. During his speech at the International Monetary Fund in Washington DC he warns us a long suffered housing bust, a brutal oil shock, a declining consumer confidence and inevitably a recession. The author states "As homeowners default on backed mortgages, the global financial system would shudder to a halt," triggering a crisis that cripple hedge funds, investment banks would go bust and other major firms would cease to be independent entities as a national economic illness becomes an international pandemic. The book clearly demonstrates how a global economy teeters on the edge of a potential deflationary spiral not seen since the great depression. He predicts the problems but also attempts to provide remedies. In chapter seven he points out how policymakers used government's power to arrest the spread of the crisis consequently with future implications stemming from theses radical measures. He asserts the need for a new rules and regulations to oversee major players and a new financial architecture to ensure transparency and stability to and for financial institutions. He explains just as the Great Depression swept away contradictions embodied by J. Edgar Hoover, the great recession promises to usher a new way of understanding and above all, a new manner of preventing crises. In an effort to advert complete ruin we often fall in the liquid trap which when the federal government becomes concerned with inflation in order to prevent the economy from becoming "overheated," they sell millions of dollars in short-term government loans. These funds are now removed from the banking system. Keep in mind that banks use every dollar on deposit to create many more dollars worth of loans, the hit to the banking system and by extension, to the money supply is something approaching 25 to 30 billion dollars. This was a global phenomenon, as the crisis arises interest rates are slashed. So hence, by 2008-2009 the Federal Reserve, Bank of England to many others have pushed interest rates close to zero. He also explains how major players like Mr. Bernake and the Treasury Secretary Henry Paulson affected the crisis and how the steps and how they have left their mark on this financial crisis.