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A 20 year veteran of banking, I'm pissed off about a lot of stuff. I know the banks screwed up, but they are not the only ones to blame. My mission is to educate the sheep who blindly follow the liberal media and ensure that there is a fair and equitable assignment of responsibility for this... More
  • Time to Retire Roubini 5 comments
    Jun 19, 2009 08:01 AM | about stocks: C, BAC, XLF

    Prognosicator-extraordinaire Nouriel Roubini is back, apparently missing the spotlight he enjoyed so frequently a few months ago.  Now he is sharing his great wisdom on the efficacy of President Obama's new initiative for restructure the regulatory system for financial institutions.

    Roubini (who obviously must be independently wealthy because of his great insight into all things financial), says the Fed under Alan Greenspan "...allowed all this toxic underwriting because they did not believe in supervision."

    I wonder if Mr. Roubini has actually ever been on the receiving end of a regulatory examination. I have.  Many times. As a lender, it was always a baffling array of directions when trying to understand what the regulators expectations were. On one hand, they were focused on "Safety & Soundness" which means they brought in statistical analysts to surgically dissect my underwriting scorecards, the performance of my loans, my collections effectiveness, etc. and then they would raise hell if I made virtually any loans that subsequently went bad.

    On the other hand, the Compliance side of the examination team would generally be a group of do-gooders who had no concept whatsoever of real risk management, loss control, good/bad risk modeling, etc. Instead their role would be to question why I turned down a loan application from an illegal immigrant (yes, I'm being serious) who otherwise had the same financial characteristics as a U.S. citizen that I had approved.

    Yes, the regulators actually discouraged me from discriminating because an applicant was an illegal immigrant. In their view, he was a minority and therefore a protected class under the the Equal Credit Opportunity Act. 

    So despite the fact I thought it was a bad idea to give loans to people who had no social security number, could be rounded up by the INS and deported at anytime (thus making my ability to collect the loan impossible), my Compliance examiners from the Fed insisted I not "discriminate" against them.

    And this in my mind is one of the fundamental flaws of our regulatory oversight system. The regulators are charged with two competing priorities. 1) Make sure the banks don't put depositors' money at risk, 2) put depositors' money at risk by making loans to people you don't think you should lend to.

    Until the Administration can figure out how to resolve this flaw in the regulatory oversight framework, the regulators will continue to fail in their duties to oversee banks properly.  And Nouriel Roubini and other so-called "experts" who have never actually experienced a regulatory examination will continue to spout nonsense about how the regulatory regime should be.

    Disclosure: Long XLF, C, BAC

    Themes: Financial Sector Stocks: C, BAC, XLF
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This post has 5 comments:

  •  
    Roubini called the 2008 stock market crash. Enough said.
    Jun 19 09:12 AM | Link | Reply
  •  
    Was he the only person who called the crash? No, tons of people predicted it. It wasn't rocket science. Even so, how does calling the market crash qualify him as an expert on regulatory oversight?
    Jun 19 09:22 AM | Link | Reply
  •  
    Contrary to your statement, there were only two prominent analysts/economists who predicted the crash - Nouriel Roubini, and Gary Shiller.

    Although regulation is less than perfect, and sometimes falls to conflicting interests, it is critical that we revive the regulatory process, at least to a updated base using lessons from the Depression. Look at the mess that was created, heavily with the push to deregulation. If we don't fix some of the problems, we can kiss our way of life good bye.

    Sorry, but I very much respect Roubini and Krugman and Shiller as pragmatic experts on the problems at hand and the requirements to correct our journey into the future.


    On Jun 19 09:22 AM Angry Banker wrote:

    > Was he the only person who called the crash? No, tons of people predicted
    > it. It wasn't rocket science. Even so, how does calling the market
    > crash qualify him as an expert on regulatory oversight?
    Jun 19 11:00 AM | Link | Reply
  •  
    Angry Banker - think you make a very valid point about the politics of regulation. Politicians should be ashamed - that is my one political conviction.

    As for Roubini - I think he deserves his victory lap he called for a serious correction for years in the face of a rising market - let's give him his due.

    The sledding will get easier for the market from here but I suspect much of it will be spent going downhill - the normalized earnings for the S&P 500 will be much lower without our past leverage - best case scenario the stock market will only provide ~5% annualized returns from our current level of 920 on the S&P 500 if you assume a 15x multiple for the next years earnings.

    Short duration corporate debt looks much more appealing at this point especially during the summer with stocks near their highs for the year.
    Jun 19 10:51 PM | Link | Reply
  •  
    Only two prominent analysts/economists predicted the crash? What planet are you living on?! Why don't you Google something like "Who predicted the 2008 stock market crash?" and you will find a plethora of experts and non-experts alike who predicted a meltdown in housing prices and collapse of the stock market occurring sometime from August to October 2008. Many of the prognosticators made their predictions in January 2008 and many more made them throughout 2007. Roubini was not an original. He just became the poster boy for many who had the same views.

    But still, that was not the point anyway. Even if Roubini had been the sole predictor of the market crash, how does that make him qualified to opine on the regulatory oversight structure? Being an expert in one field (e.g., economics), does not necessarily make you an expert in consumer protection, credit risk management, politics, and the dozens of other disciplines required to formulate an effective regulatory framework. How has Roubini ever demonstrated an accomplished insight into the complexities of the regulatory environment? He hasn't and therefore should not be paraded out by drooling media as an expert in this area.


    On Jun 19 11:00 AM JCC wrote:

    > Contrary to your statement, there were only two prominent analysts/economists
    > who predicted the crash - Nouriel Roubini, and Gary Shiller.
    >
    > Although regulation is less than perfect, and sometimes falls to
    > conflicting interests, it is critical that we revive the regulatory
    > process, at least to a updated base using lessons from the Depression.
    > Look at the mess that was created, heavily with the push to deregulation.
    > If we don't fix some of the problems, we can kiss our way of life
    > good bye.
    >
    > Sorry, but I very much respect Roubini and Krugman and Shiller as
    > pragmatic experts on the problems at hand and the requirements to
    > correct our journey into the future.
    Jun 21 06:11 AM | Link | Reply
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