© The Financial Times Ltd 2016
FT and 'Financial Times' are trademarks of The Financial Times Ltd.
The Financial Times and its journalism are subject to a self-regulation regime under the FT Editorial Code of Practice.
May 7, 2010 9:13 pm
It is not yet eight o’clock in the morning but already the ultra-trendy Soho Grand hotel in Tribeca, New York, feels like a film set. The cavernous hall is dominated by concrete pillars, metal sculptures and vast leather sofas, on which a collection of unfeasibly beautiful, elegant people are draped.
It seems an odd place to meet an academic economist for breakfast. But then Nouriel Roubini is not your average egg-head. Granted, until the financial crisis started three years ago, he had spent most of his career analysing economics and writing books with titles such as Political Cycles and the Macroeconomy (1997) or New International Financial Architecture (co-editor, 2005). He was also responsible for delivering a series of speeches on the fragility of the banking world so dour that they earned him the monicker “Doctor Doom”.
But in 2007, all this changed unexpectedly. The financial crisis exploded and, almost overnight it seemed, the world realised that Roubini was one of the few economists who had actually predicted the looming banking collapse. Today policymakers around the world hang on his words, journalists flock to his speeches to hear his latest predictions and clients pay big money to receive analysis from his consultancy company, Roubini Global Economics.
His influence has stretched beyond the business world and even into Hollywood: he appears briefly, as himself, in Wall Street: Money Never Sleeps, Oliver Stone’s forthcoming sequel to his 1980s parable of markets gone mad, as well as Inside Job, a forthcoming documentary narrated by Matt Damon. He is even something of an intellectual pin-up: his Facebook page is adorned with numerous photos of Roubini attending star-studded parties, usually with a bevy of beautiful women. (“They love my beautiful mind ... I am ugly but they are attracted to the brains,” he told a gossip columnist last year.)
A few minutes before eight, the 51-year-old nerd-turned-heartthrob materialises in the lobby, wearing black jeans and an open-necked pale yellow shirt. It blends in perfectly with the hotel decor. The only discordant note is struck by his brown leather shoes, which are shockingly, defiantly battered. Is he too cerebral to worry about trifles like shoe polish? Or simply too self-confident to care? Either way, it gives this famous economist an oddly arty air.
He drapes himself gawkily over a vast leather sofa, and explains that the trendy location could be his local. “I only live five minutes away,” he shrugs, looking at me warily with spaniel-like, dark brown eyes. A breakfast menu appears, offering minimalist, fashionable dishes. I select egg white frittata, espresso and a protein power shake; Roubini orders granola, juice, yoghurt and a latte, though he seems totally uninterested in the food.
“So what is it like being a celebrity?” I ask, wondering if he feels smug. He pulls a face. “Celebrity is just noise,” he mutters. “People are talking as if I have come from nowhere, as if I was in a little office somewhere, by myself all those years, totally obscure but then suddenly became famous. But that is not true at all – I have been an economist for 20 years!”
Indignantly, he runs through the details of his career. It is unusual. Born in Istanbul in 1959 to Iranian Jewish parents, he spent his early years in Iran, before moving to Italy, where he attended school and university. He subsequently moved to the US and Harvard, where he did a PhD in economics, then taught at Yale and in New York. Roubini, who speaks Italian, Hebrew and Farsi, says he finally felt he had arrived in the US “about 15 years ago, when I started dreaming in English”. During this period he also did stints at the International Monetary Fund, Federal Reserve, World Bank, the US White House Council of Economic Advisers and the Treasury department, before setting up his own consultancy firm.
Hardly the cv of a nobody, it’s true. But Roubini was still far from being a household name when, in the autumn of 2006, with the world economy and credit markets booming, he gave a big speech to the IMF warning that the “United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and ultimately a deep recession”, along with “homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unravelling worldwide and the global financial system shuddering to a halt”. It was a bold call; so much so that many policymakers and economists thought Roubini was slightly mad.
Indeed, when Roubini attended the World Economic Forum meeting in Davos in January 2007 to make similar prophesies, his warnings were widely dismissed. It was at this rarefied Swiss mountain resort that I first encountered him and I remember it very well. In the preceding months I had also started to write about the dangers of complex finance (albeit far less eloquently and dramatically than Roubini) and those pieces sparked criticism from some of the luminaries assembled at Davos, who accused me of being “alarmist”. Though we had never met before – and have barely talked since – at one sun-dappled lunch in a stuffy Swiss hotel Roubini forcefully defended my articles. I tell him I was grateful; vocal Cassandras were very thin on the ground back then.
“I remember that,” Roubini laughs. He then recalls, with irritation, a column written by Michael Lewis, author of the acclaimed Wall Street study Liar’s Poker (1989) as well as the recently published study The Big Short (2009), during that Davos meeting, which labelled Cassandras such as Roubini as “wimps” and “ninnies”. “It is amazing how some people have changed their views,” he says, adding acerbically that “there is a lot of Monday morning quarterbacking” now.
Why did the banking world spin out of control in 2007? Roubini has co-authored with Stephen Mihm, a professor of economic history, a book about the banking collapse, Crisis Economics, which seeks to answer this question and suggest what can be done to put it right. At first glance it covers similar ground to all the other “crunch lit” books now being churned out by economists. What sets this one apart, however, is that unlike almost every other economist – exceptions include William White and Claudio Borio of the Bank for International Settlements – Roubini can claim to have got things right before disaster struck. So what made him so sure he was right, I ask, as our understated breakfast arrives on the low table next to the leather sofa. The only splash of colour is a vast strawberry adorning my power shake.
“Having spent 10 years studying emerging markets, I know that you have patterns repeated over and over again,” he explains. “A bubble is like a fire which needs oxygen to continue ... when you see there is no oxygen, things change.” More specifically, by the summer of 2006 Roubini could see that the housing market had peaked. That left him convinced that the system was about to unravel, because there was so much mortgage debt.
He has continued to issue warnings since the crash. In early 2009, he argued that the banking crisis might not be finished. He also suggested that there was a 20 per cent chance of a double-dip recession, because American growth would be so weak. In fact, the US economy has rebounded faster than he expected and bank share prices have risen too. All of which leaves some rivals gloating that Roubini was simply lucky with his 2006 call. He retorts, though, that it is still too early to conclude that the global economy is really on a recovery track. And at least one recent call has been correct: for the past year he has repeatedly warned about dangers stalking sovereign debt. In particular, he thinks that the dramas in Greece reflect a bigger problem facing the western world, since governments appear to lack the stomach to tackle spiralling government debt.
“What really worries me about the US right now is that there is this [political] gridlock,” he says, arguing that this prevents the government from taking the necessary tough decisions. “The UK has the same problem. There is no real willingness to have spending cuts or tax increases.” As a result, “there will be temptation to keep monetising the fiscal deficit”, which will ultimately produce inflation.
To combat those risks, Roubini wants policymakers to co-operate across party lines and to break out of their old ideological boxes of “left” and “right”. “I grew up in Italy in the 1960s and 1970s and it was a period of a lot of social turmoil, when even young teenagers were engaged in politics. I was slightly more left of centre then,” he says, stirring sugar into his latte, making elegant swirls of brown and white. These days he is “centrist” on economic issues, since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals – but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called “Austrian school” of economics. “There is this big debate between the Keynesian school and the Austrian school. But I am pragmatic and eclectic. It is all about timing.”
So where would he suggest people put their money now? What does he do? He looks coy. “I have never in my life bought an individual stock, bond or currency. I have my own 401k [pension and savings pot] in a passive fund – 100 per cent equity investment, half US, half non-US. All the extra income I have received in the past few years has gone into cash. At some point I will move that into riskier assets, but not now.” This caution seems typical of Doctor Doom, I suggest. He disagrees. “Dr Doom as a nickname was cute and I did like it for a while but what I keep saying now is that I am Dr Realist.”
In other words, Roubini now wants to be known as a sage who can proffer constructive advice, instead of predicting disaster. Indeed, on the day we meet he has written a column for the FT urging Europe to let Greece restructure its debt. And he has just returned from Washington, where he met a group of senior western finance ministers and central bankers. “What is important to me is that when I write something, people listen to me. I provide my wisdom to people, whether they agree or not.”
As he dollops yoghurt on to his granola, I cut to the chase. How does such lofty economic “wisdom” coexist with his new-found celebrity, gossip-column status? “Celebrity has become a burden,” he sighs, “there are more demands on your time. People think it is glamorous to fly places. But it is not – even if you travel business class and stay in wonderful hotels, you end 10,000 miles away from home.” He reckons that he spends two-thirds of each year on the road; unsurprisingly, the new book was mostly written on planes.
I suggest that some of his rivals would struggle to feel much sympathy with the “dilemma” of having to stay in luxurious hotels. In fact, many might feel a twinge of jealousy, when they look at the money, fame and parties (he recently posted some pictures of a party that he attended in the Caribbean, thrown by Roman Abramovich). And what about all those glamorous women constantly surrounding the permanent bachelor Roubini?
“I am just a normal human being – I am alive! Why is anyone surprised that I am human?” retorts Roubini. “Like many New Yorkers, I have a multifaceted life. I collect art – I love modern art, film ... in fact, soon I am going to Cannes because I am appearing in two films!”
I express surprise; the film stars who live in this part of New York might consider this entirely “normal”. Most egghead academics do not. However, Roubini explains that both films – Stone’s Wall Street drama and the documentary Inside Job – are essentially highlighting the role he played in predicting the credit disaster.
I suddenly recall that I also gave an interview for the latter, talking about complex credit instruments, and am apparently appearing in it too. Our conversation and the location begin to take on a surreal quality; suddenly the starry grandeur of the Soho Grand does not seem such a strange place to be chatting about mortgage-backed securities after all. Three years ago, it was hard to imagine that such complex financial tools would ever attract the interest of Hollywood. Or that a man such as Roubini would be hailed as a prophet, or go partying in Cannes. Yet now that this bizarre plot twist has occurred, he is clearly determined to enjoy it – whatever fellow academics think.
I ask for the bill. Roubini has been so busy talking that he has barely eaten. He gathers himself up, and we stroll through the lobby, surrounded by concrete, bottleglass and steel. “You must come to Cannes too! We can be a wonk and wonkette together!” he says, laughing at such an odd thought. I laugh off his infectious enthusiasm. Then, as he leaves, find myself checking my diary; could I fit in a trip to the film premiere in Cannes? Should I? Sovereign debt crises and collateralised debt obligations never used to be this much fun.
‘Crisis Economics’ by Nouriel Roubini and Stephen Mihm (Penguin, £25) is published on May 20
Soho Grand Hotel, New York
1 double espresso $8
1 granola $9
1 plain yoghurt $2
1 frittata $16
1 power soy drink $9
1 latte $6
1 large Saratoga juice $8
Total (including service) $58 (£39)
Gillian Tett on what we can learn from ‘wild west’ economies
In 2007, Nassim Nicholas Taleb, a maverick New York economist, published an attention-grabbing book, The Black Swan, in which he urged investors to prepare for events so rare that they were almost unimaginable in advance. These so-called “black swans” could, he predicted, take markets completely by surprise.
For Nouriel Roubini, however, the concept of a “black swan” is not helpful in looking at the current credit crunch. Instead he prefers to describe the dramas of the past few years as a set of “white swans”, in the sense that they are following a pattern that is not that rare, since it has already been played out numerous times across the world in recent times.
This statement might surprise western observers; after all, most of the US and Europe have not experienced sovereign debt crises and financial collapses in recent memory. Yet Roubini argues that the key to understanding the current crisis is to look beyond the west to the world’s emerging markets, which have experienced plenty of shocks. It is now time for the pupil to offer the teacher some tips. More specifically, countries such as Greece, Portugal and Spain – or even the US and UK – should look to places that have experienced shocks, such as Mexico, Korea and Argentina, to analyse what to do.
Roubini is not the only economist who wants to rethink the relationship between “emerged” and “emerging” nations. A striking development of the past year is that western governments have become so debt-laden that their fiscal fundamentals now look worse than many non-western nations. The debt to gross domestic product ratio of, say, Brazil, Russia, India and China are 57 per cent, 6 per cent, 85 per cent and 22 per cent. Countries such as Japan, Greece and Italy, however, have ratios over 100 per cent, and even the US and UK could conceivably hit 100 per cent soon.
This has turned previous conventional wisdom on its head, and the trend looks set to continue. Western countries are now piling on debt, amid sluggish growth; but many emerging market nations are now growing faster than the western world, and have been more prudent in policy approach in recent years.
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.