asiawatcher

The Dr. Doom Space Is Getting Crowded

Henry Kaufmann used to be on the cable news business shows back in the day as well as on shows like Wall Street Week. It has been so long since I heard from him or saw him on tv that I thought he was dead....he earned the moniker "Dr. Doom" not because of any prediction of a collapse of the banking system a la Roubini et al but because he was perpetually predicting that bond prices would crash. He certainly hasn't been a Dr. Doom of late: as head of the risk committee for Lehman's board, he obviously missed the biggest call of all time. Look, there are plenty of people who saw this meltdown coming, but they are not the usual talking heads who hog all the air time on tv...anyone who was involved in the asian financial sector during the late 90s or even the US S&L crisis and bothered to do just a little bit of comparative analysis could see that we were living in a financial bubble. The interesting thing about the current crisis vs. the Asian crisis is that Summers and Geithner pushed the affected countries to adhere to IMF conditionality--they get loans to deal with their liquidity crisis (i.e. cover their dwindling fx reserves to help them meet dollar debt obligations) if they (1) implemented tighter fiscal and monetary policy (2) privatize state owned firms (3) reduce subsidies (4) close insolvent banks/finance companies and (5) put those firms' nonperforming loans ("toxic assets") onto the government's books followed by auctioning them to....Goldman Sachs, Lehman, GE Capital etc...isn't it interesting that the same gang is now supporting exactly the opposite kind of response: (1) the loosest fiscal and monetary policies ever seen in an advanced economy (2) nationalization of companies (banks, auto companies, AIG) (3) no reduction in subsidies (4) after letting a couple investment banks go, they panicked and have poured $150 BILLION down the AIG rat hole and (5) no action on toxic assets despite the original intent of the TARP. Don't be surprised to see a 10% collapse in GDP in 2009 as the crisis works through the nonfinancial sector as access to credit remains difficult given the continued weakness in financial sector balance sheets and, unless we see some of the formula that worked in Asia in the late 90s being applied here, expect continued decline in 2010 and even beyond.