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Peering Over the Cliff, Saying 'I Told You So'
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When it comes to tomorrow, the long-term pessimists are still, well, pessimistic. "I think the central banks are going to next wear the goat horns," said Grant, saying that the Fed and other central banks would lose credibility as they wade deeper into managing banks and insurance companies.
Referring to former Federal Reserve chairman Alan Greenspan and current chairman Ben S. Bernanke, Grant said that "in the old days, when the maestro ran the Fed, people attributed to him qualities of clairvoyance. Then the next guy came and, though mere mortal, was given the benefit of doubt. He turns out not to have been much of a prophet."
Rogoff says, "I think the government will ultimately be pressed to take more radical measures." He predicts an expansion of federal deposit insurance, a new institution similar to the Resolution Trust Corporation, which bailed out savings and loan institutions two decades ago, and the need for the Treasury and Fed to shell out $1 trillion to restore stability.
Among the gloomiest -- and most prescient -- of economic prognosticators has been Nouriel Roubini, an economic professor at New York University and founder of RGE Monitor, an economic consulting and commentary firm.
In the past two weeks, Roubini has been lashing out at the Bush administration on his blog. He calls the president, Treasury secretary and Fed chairman "comrades Bush, Paulson and Bernanke" and brands them as "laissez faire voodoo-economics zealots." He says the United States has turned into the "United Socialist State Republic of America," bringing "socialism for the rich, the well-connected and Wall Street" and making sure "profits are privatized and losses are socialized."
Grant, for one, has a bit more humility. One reason may be that in March, he recommended that people buy American International Group, the insurance giant that the federal government just seized control of to prevent the cash-short firm from causing even greater market turmoil. He points out, however, that he reversed his opinion in May, at which point, he notes, "the stock still had two digits attached to it." After the federal takeover, AIG now sells for $2.69 a share.
"The best words I wrote this year were 'I was wrong on AIG,' " Grant said.
