the greatest depression

The Fearmongers of Finance

It’s Halloween, and ‘tis the season for fear. Only this year, it’s not the usual kind of fun, festive, tingly fear that we like to bring upon ourselves by watching Tales from the Crypt, or Daily Intel’s personal favorite, Cheerleading Camp. It’s real fear. Cold, hard, pit-of-the-stomach terror of events that seem way more likely than getting attacked by creatures from the grave — fear that our homes and cars and credit cards could disappear, or that it’s only a matter of time before we’ll go to the bank and our ATM card won’t work. In short, fear that our whole way of life could soon completely fall apart. How scared should we be? We don’t really know. There are some who are optimistic about the economy’s recovery. But Leif Garrett was optimistic, too, right before he was filleted by a knife-wielding cheerleader, and there are plenty of analysts who think we should be very, very afraid of what’s to come. These are the fearmongers who have been making spooky Halloween noises all year long.

1. Nassim Nicholas Taleb. This former Wall Street derivatives trader warned of the global banking crisis in 2006 in his book The Black Swan. Last week on Charlie Rose, he said that “The banking system, the way we have it, is a monstrous giant built on feet of clay.” Taleb continued: “And if that topples, we’re gone. Never in the history of the world have we faced so much complexity combined with so much incompetence and [lack of] understanding of its properties.”

2. Nouriel Roubini. The former U.S. Treasury adviser and NYU professor, dubbed Dr. Doom, has been calling the meltdown for over a year now and believes it’s far from over. Just a few days ago, Roubini declared that we’re “entering a severe two-year recession,” up to 500 hedge funds will close within months, the financial markets are “becoming totally unhinged,” and if we don’t enact a “huge [fiscal stimulus] plan,” the economy will likely fall into a “self-fulfilling animal spirit recession that is more severe than otherwise.” Still, we can’t help but feeling those plaster vulvas on the wall of his apartment are a sign of hopefulness.

3. Bernard-Henri Lévy. The French public intellectual, not one to miss out on a global crisis, ran wild with Roubini’s “animal spirit” in the New Republic on Monday when he wrote that we are in a “suspended apocalypse” and then delightfully asked: “Is man a predator of man? Does the fear of this predator slumber within us? An anxiety, formerly concealed by a poorly applied varnish of civilization, about a state of nature that is re-emerging? Consider the princes of finance, once so polite, so complicit, so civilized, who have been facing each other at the edge of the abyss, waiting to see who will be the next to fall; consider that dance of wolves, the ferocious ballet of battered predators sniffing at each other, detecting the scent of death on their neighbors, coveting their remains; consider the tango of white-hot hate that has been discreetly called the ‘drying up of interbank credit.’”

4. Suze Orman. You don’t have to be a heavyweight analyst to smell the fear. The CNBC financial adviser said last week that the current situation could result in Depression-style “bread lines.”

5. Christopher Wood. Wood, a managing director and chief strategist of the brokerage firm CLSA, and author of the influential Greed & Fear newsletter, predicted the subprime crisis back in 2005. (“I was actually too early,” he lamented recently.) Now he has turned his jaundiced eye to the dollar, which he thinks is due to lose its standing as the default currency. Wood recently predicted that “the recovery in the U.S. is going to be L-shaped, which is to say a long period of malaise.”

6. Marc Faber. The Zurich-born investment analyst publishes a newsletter called “Gloom Boom Doom” and runs a Website by the same name, which features illustrations of skeletons in “The Dance of Death.” Faber has been forecasting an economic meltdown since 2005, hates the bailout, and said on October 13, “I guarantee you the U.S. will go bankrupt, it’s only a question of time. Sooner or later.” We’d be scared if he weren’t so adorable.

7. Bill Fleckenstein. This short-seller (and frequent Fast Money call-in shouter, which we mean in the best possible way) isn’t impressed by the U.S. government’s coordinated rate cuts, buying up of banks’ bad assets, and commitment to buy commercial paper. Fleckenstein has said he has “zero confidence” that the moves will help, and believes there’s a chance we’ll enter a depression.

8. Stephen Roach. Senior executive (formerly chief economist) for Morgan Stanley and a “perennial bear.” Predicted an “economic Armageddon” as early as 2004 (and at the time apparently pegged the U.S.’s chance of escaping said disaster at less than 10 percent — obviously the jury’s still out there). Roach said last week that the housing recession has “shifted to a full blown consumer recession, which has a much bigger impact on a broad swath of the U.S. economy.”

9. Peter Schiff. In May, when asked by U.S. News to “say something positive about the U.S. economy,” the president of broker-dealer Euro Capital answered, “There’s nothing good to say about our situation.” Expects that home prices will fall “a lot more,” and told CNN Money yesterday that the government’s economic stimulus packages “will effectively hold the firemen at bay while throwing gasoline on the flames.”

10. Meredith Whitney. Oppenheimer & Co. analyst Meredith Whitney has been ahead of the meltdown for a year now. She called the credit crisis last fall with a bearish prediction about Citigroup, wrote in May that “what lies ahead will be worse than what is behind us,” and in August, told Fortune that “It feels like I’m at the epicenter of the biggest financial crisis in history.” Since then, she’s turned her all-seeing eye to the bailout, which she deemed not enough (it wasn’t), and still reserves a special loathing for Citigroup, whose rating she just changed to “underperform.” “We continue to believe outsized expenses and negative operating leverage represent the largest challenge for the company,” the Oppenheimer & Co. analyst said. We’re scared.

Happy Halloween, everyone!

The Fearmongers of Finance