Roubini on the new G-0 world and too big to fail banks as worse than ever

Nouriel Roubini and Ian Bremmer were on “Bloomberg Surveillance” this morning talking about the economy and the upcoming election in the U.S. A partial transcript and video are below.  The headline story is that Nouriel believes that too big to fail banks are “worse than before” the crisis. They are bigger, more powerful and more dangerous than ever. He believes the only real solution to deal with there systemic risk is “break up.”

Bremmer, who is a political and foreign policy expert, focused on these issues, saying that if Obama wins in November, it won’t be “not primarily because Romney is a horrible candidate,” but because of three people: John Roberts, Angela Merkel and Ben Bernanke. No wonder the Republicans hate Bernanke!

The big macro view they shared which bears watching develop is the concept of the G-0 i.e. an every nation for itself kind of politics starting to play out as this crisis drags on. The dichotomy between France’s economic profile and its political profile in the euro zone is at the core of this thesis.

Video below



Roubini on why the Federal Reserve keeps issuing quantitative easing:

“We’re in the process of very painful deleveraging in advanced economies. We started the crisis with too much private debt and now we have too much public debt and deficits. Research suggests that usually a deleveraging cycle can last up to a decade. The crisis in 2007, now we are in 2012 and therefore the process of deleveraging in the United States, in the euro zone, in the U.K. and Japan is barely mid-stream. In the U.S. we postponed the deleveraging of the public sector and the housing sector, and therefore, economic growth will is anemic. Therefore, the only thing we can do, given we don’t have the fiscal tool, is use the monetary policy.”

Bremmer on what is needed in Washington to get something done:

“You don’t get there until after the elections and you shouldn’t, because whether or not Obama is able to take this, the actual outcome, the way that you have Senate and House laid out, that actually matters in terms of the ultimate deal you get. So if you’re a Democrat or Republican right now, you have zero incentive to tip your hand on what you really want to do until you know where we’re going to go. As soon as we get past those election, a deal is going to happen.”

Roubini on whether Bernanke is an asset or liability for President Obama:

“At the margin, he’s an asset in a sense of what the Fed has been doing is reduce the tail risk of another double dip recession. QE, QE2, Operation Twist and now QE 3. It is not going to have a huge effect on the economy, but it already has an effect on stock prices. There has been a rally of 15% since December in part because of lower tail risk in the euro zone and in part because of QE3. The margin is beneficial, but only marginally.”

Bremmer on November’s election:

“If Obama wins, and it is looking very much like he is going to, it’s not primarily because Romney is a horrible candidate. It is primarily because of three people. It’s John Roberts and the fact that he got healthcare approved. It’s Angela Merkel and the fact of the chancellor has been able to keep the euro zone afloat…And number 3, Ben Bernanke. You would not expect these three people President Obama would win with.”

Roubini on the banking system in the U.S.:

“It is worse than before, because there has been massive consolidation of the banking system in the United States, JPMorgan took over Bear Stearns. Bank of America took over Countrywide and Merrill Lynch. We had banks that were too big to fail before the crisis and now they are even bigger to fail than before. There has been mass consolidation. The problem has not gone away. The only solution is to break up too big to fail banks. There is no other alternative. We have to go back to Glass-Steagall.”

Roubini on what would be the catalyst to break up the banks:

“I would have thought after the worst global financial crisis the decision would have been made. Maybe we need another big financial crisis. For the time being, the politics will not lead us there.”

Bremmer on where the leadership will come from to get to a better financial system:

“It will not come soon. What you’re really talking about when you talk about too big to fail is the United States. We are too big to fail that has only become more true since 2008. It is the reason why people continue to put more money in our equities and our treasuries.”

Roubini on the economic outlook of Germany:

“There was a divergence between economic growth of the core and the peripheral of the euro zone. Germany used to do better, but the latest data suggests a slowdown in German economic growth. It is still positive, but there are two shocks. There are two main markets for exports, China and Asia, are slowing down. Secondly, the recession of the periphery of the euro zone is taking a toll because after all, most of the exports of Germany go to the rest of the euro zone. There is a significant slowdown of growth, even in Germany.”

1 Comment
  1. David_Lazarus says

    Roubini is pretty spot on. The only solution to the too big to fail banks is another banking crisis. He is also so accurate as to why Bernanke is doing what he is doing. Without Congress acting and using fiscal tools the Fed has too. So if you are angry about the Fed you really should aim that anger at Congress who have not being doing their part.

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