Behind Dr. Doom

Nouriel Roubini still may not be a household name, but he's getting there. The NYU economics professor has received a bunch of airtime and newspaper space as the doomsday prognosticator who got it right. Nearly two years ago, when all seemed mostly right with the world, Roubini was predicting a once-in-a-lifetime housing bust, an oil shock, sharply lower consumer confidence and a deep recession. He said there would be trillions of dollars of mortgage-backed securities unraveling worldwide. He said investment banks and even goliaths like Fannie Mae and Freddie Mac would be crippled. Er, he seems to be on a winning streak. Now it's worth noting that every economic turning point has its prophets who made the right calls at the right time (and who often get demystified the next time around). But to predict the unraveling of mortgage-backed securities so early shows more than just good instincts. That, of course, is why Roubini has elicited so much interest - and worry. He gets an up close and personal look in this Sunday's NYT magazine, where he says, among other things, that "This might be the beginning of the end of the American empire." Oh.

Roubini argues that most of the losses from this bad debt have yet to be written off, and the toll from bad commercial real estate loans alone may help send hundreds of local banks into the arms of the Federal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, these bailouts will add hundreds of billions of dollars to an already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations. “Our biggest financiers are China, Russia and the gulf states,” Roubini noted. “These are rivals, not allies.” The United States, Roubini went on, will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. “Once you run current-account deficits, you depend on the kindness of strangers,” he said, pausing to let out a resigned sigh.