12 steps to meltdown

If you like laying on the economic pessimism extra thick then this article by Martin Wolf in the Financial Times today is worth a look. He draws on the work of Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor who has been a constant prophet of doom on the US economy for longer than most. Roubini has developed a list of 12 steps towards the mother of all economic meltdowns

Step one is the worst housing recession in US history Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages Step three would be big losses on unsecured consumer debt Step four would be the downgrading of the monoline insurers Step five would be the meltdown of the commercial property market Step six would be bankruptcy of a large regional or national bank. Step seven would be big losses on reckless leveraged buy-outs Step eight would be a wave of corporate defaults Step nine would be a meltdown in the “shadow financial system”. Step 10 would be a further collapse in stock prices Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Step 12 would be “a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices

Today oil prices finished above $100 a barrel for the first time. And Credit Suisse revealed that it had suspended a “handful” of traders for overvaluing assets and would take a $1 billion hit to its first-quarter results.