Without meaning to promote depression and unease, this caught my eye from Der Spiegel (interview with Nouriel Rouhini):
SPIEGEL: Today, it’s a debt crisis. Before that it was a banking crisis. And before that a real estate crisis. Must we get used to constantly being hit by new crises?
Roubini: I am afraid so. In my new book I show that crises are part of capitalism’s DNA. They are not the exception but rather the rule. Many elements vital to capitalism, like innovation and risk taking, also trigger frequent collapse. And what we just went through could get much worse in the future.
SPIEGEL: You make it sound as though crises were inevitable.
Roubini: They are not inevitable. But if you look at history, you will see patterns repeated — such as excessively loose monetary policy, leveraged vulnerabilities and weak regulation. And we will see them again. Probably we will have even more crises in the future.
SPIEGEL: Is there a script for crises?
Roubini: No crisis is identical but many of them are similar. There is a stage of boom and bubble before the bust and the crash. People will see the value of certain assets like homes or equity go up, then they will use these assets as a collateral for borrowing too much and therefore you have a build-up of leverage in the financial system. And then, once the bubble goes bust, the value of the assets falls and people are stuck with all this debt they can’t repay.
SPIEGEL: But how do you recognize a bubble?
Roubini: It’s difficult. I get suspicious when people say, this time it’s different and this innovation is going to radically change the way we live and work and it is going to lead to long-term massive increase in actual wealth. During the tech bubble there were people writing books with titles like “Dow at 36,000.”
This all sounds very familiar of course but in the light of previous posts on handling global complexity and better using a scientific approach in decision making, maybe this is the time to take such approaches far more seriously rather than just hope that things will get better with a bit of well-meant tweaking?
Nouriel Roubini is considered the prophet of the financial crisis. Four years ago, he was one of the first to warn that banks and national economies could be in for trouble. Roubini, 52, was born in Istanbul to a Jewish-Iranian family before growing up in Iran, Israel and Italy. Since 1995, he has been an economics professor at New York University. In addition, he operates a consulting firm of 80 employees, which provides financial analysis to clients in the finance industry.