The Credit Crisis: October 2, 2008 (Conferencia)
Resumen de la conferencia organizada por Risk Metrics Group y Roubini Global Economics el pasado jueves 2 de octubre de 2008, en la que participaron Nouriel Roubini, Chairman of RGE Monitor, Barry Ritholtz, CEO and Director of Equity Research of Fusion IQ, y Zach Gast of RiskMetrics Group.Nouriel Roubini's (Dr. in Economics, RGE Monitor Chairman):
• The crisis has flawed across the world. ~ 50% of the world GDP is currently in recession.
• Equity markets will fall another 15% - 20% if the scenario of a sever US recession is confirmed (18 months of recession).
• This situation requires a response of the regulators and policy makers using traditional and non traditional measures.
• We're not living a systemic financial meltdown; we're living a "silent run" of the banking system. It all started with the Mortgage Lenders, then the Conduits and SIVs, Broker Dealers and Hedge Funds went after that and now the traditional banks are struggling. We're in a point were the next step is the collapse of the corporate sector. Commercial paper markets are closed and the lack of confidence has reduced to zero the activity in the issuance activity of the highest rated corporations.
• The solution proposed by Paulson / Bernanke will not solve the problem. Roubini bets for a "Triage Approach", which means:
o Blanket guarantee to all deposits, rather than only for those up to 250k USD. Deposits out of the FDIC protection are running away from banks.
o The government needs to execute a rapid triage between insolvent banks that should be quickly closed and distressed but solvent - conditional on liquidity and capital injections - banks that should be rescued.
o Then, recapitalize the surviving banks through the purchase of preferred stock, and reduce the mortgage debt, through an HLOC or similar agency, so debtors can stay in their homes and pay their mortgage. Hence, confidence to banks is re-established.
• If the government actions are not able to make the system solvent enough to provide the corporate sector with cash, US will be facing a situation similar to the Great Depression.
• Life and health insurance companies are exposed due to their classic investment policies.
Barry Ritholtz (CEO, Risk Metrics):
• We're not living the "Great Depression"; we're living a "Fair Depression". Cycle peak was pretty high so the slowdown is more marked. P/E Ratios are still at 2 digits levels in most of the S&P 500 companies, there are small chances to see P/E at one digit levels like in the "Great Depression".
• During the last upturn of the market, leverage lessons were not well learned. Now the highly leveraged business models should fall no matter what. Otherwise, next peak in the cycle will be even worse.
Zach Gast (Bank Valuations managers, Risk Metrics):
• The different accounting methods are all right when liquidity is available in the market. Now, the spread between the fair valuation of assets and the amortized cost is higher than ever.
Problems in banks will arise now that the quarterly earnings will reflect the changes in the balance sheets. Capital adequacy is where we are looking now to determine the risk of bailout of a specific bank.