主题：【讨论】“六个月之后不会再有投行存在了”。 -- 厚积薄发

The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to

Financial Disaster

by Nouriel Roubini

February 5, 2008

Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past

January? It is true that most macro indicators are heading south and suggesting a deep

and severe recession that has already started. But the flow of bad macro news in mid-

January did not justify, by itself, such a radical inter-meeting emergency Fed action

followed by another cut at the formal FOMC meeting.

To understand the Fed actions one has to realize that there is now a rising probability of a

“catastrophic” financial and economic outcome, i.e. a vicious circle where a deep

recession makes the financial losses more severe and where, in turn, large and growing

financial losses and a financial meltdown make the recession even more severe. The Fed

is seriously worried about this vicious circle and about the risks of a systemic financial

meltdown.

That is the reason the Fed had thrown all caution to the wind – after a year in which it

was behind the curve and underplaying the economic and financial risks – and has taken

a very aggressive approach to risk management; this is a much more aggressive approach

than the Greenspan one in spite of the initial views that the Bernanke Fed would be more

cautious than Greenspan in reacting to economic and financial vulnerabilities.

To understand the risks that the financial system is facing today I present the “nightmare”

or “catastrophic” scenario that the Fed and financial officials around the world are now

worried about. Such a scenario – however extreme – has a rising and significant

probability of occurring. Thus, it does not describe a very low probability event but rather

an outcome that is quite possible.

Start first with the recession that is now enveloping the US economy. Let us assume – as

likely - that this recession – that already started in December 2007 - will be worse than

the mild ones – that lasted 8 months – that occurred in 1990-91 and 2001. The recession

of 2008 will be more severe for several reasons: first, we have the biggest housing bust in

US history with home prices likely to eventually fall 20 to 30%; second, because of a

credit bubble that went beyond mortgages and because of reckless financial innovation

and securitization the ongoing credit bust will lead to a severe credit crunch; third, US

households – whose consumption is over 70% of GDP - have spent well beyond their

means for years now piling up a massive amount of debt, both mortgage and otherwise;

now that home prices are falling and a severe credit crunch is emerging the retrenchment

of private consumption will be serious and protracted. So let us suppose that the recession

of 2008 will last at least four quarters and, possibly, up to six quarters. What will be the

consequences of it?

Here are the twelve steps or stages of a scenario of systemic financial meltdown

associated with this severe economic recession…

First, this is the worst housing recession in US history and there is no sign it will bottom

out any time soon. At this point it is clear that US home prices will fall between 20% and

30% from their bubbly peak; that would wipe out between $4 trillion and $6 trillion of

household wealth. While the subprime meltdown is likely to cause about 2.2 million

foreclosures, a 30% fall in home values would imply that over 10 million households

would have negative equity in their homes and would have a big incentive to use “jingle

mail” (i.e. default, put the home keys in an envelope and send it to their mortgage bank).

Moreover, soon enough a few very large home builders will go bankrupt and join the

dozens of other small ones that have already gone bankrupt thus leading to another free

fall in home builders’ stock prices that have irrationally rallied in the last few weeks in

spite of a worsening housing recession.

Second, losses for the financial system from the subprime disaster are now estimated to

be as high as $250 to $300 billion. But the financial losses will not be only in subprime

mortgages and the related RMBS and CDOs. They are now spreading to near prime and

prime mortgages as the same reckless lending practices in subprime (no down-payment,

no verification of income, jobs and assets (i.e. NINJA or LIAR loans), interest rate only,

negative amortization, teaser rates, etc.) were occurring across the entire spectrum of

mortgages; about 60% of all mortgage origination since 2005 through 2007 had these

reckless and toxic features. So this is a generalized mortgage crisis and meltdown, not

just a subprime one. And losses among all sorts of mortgages will sharply increase as

home prices fall sharply and the economy spins into a serious recession. Goldman Sachs

now estimates total mortgage credit losses of about $400 billion; but the eventual figures

could be much larger if home prices fall more than 20%. Also, the RMBS and CDO

markets for securitization of mortgages – already dead for subprime and frozen for other

mortgages - remain in a severe credit crunch, thus reducing further the ability of banks to

originate mortgages. The mortgage credit crunch will become even more severe.

Also add to the woes and losses of the financial institutions the meltdown of hundreds of

billions of off balance SIVs and conduits; this meltdown and the roll-off of the ABCP

market has forced banks to bring back on balance sheet these toxic off balance sheet

vehicles adding to the capital and liquidity crunch of the financial institutions and adding

to their on balance sheet losses. And because of securitization the securitized toxic waste

has been spread from banks to capital markets and their investors in the US and abroad,

thus increasing – rather than reducing systemic risk – and making the credit crunch

global.

• 【讨论】“六个月之后不会再有投行存在了”。
• 【翻译】大萧条以来最严重的金融危机（三）
• 再次花谢，鞠躬。您可真是帮了大忙了。