Tags: american | ponzi | scheme

Roubini: America One Big Ponzi Scheme

By    |   Thursday, 19 Mar 2009 09:48 AM

For more than 10 years, millions of Americans ran their own personal Ponzi schemes, says NYU economist Nouriel Roubini.

"When you put zero down on your home, and you thus have no equity in your home, your leverage is literally infinite and you are playing a Ponzi game," Roubini writes in Forbes.

It’s a game virtually everyone played, Roubini notes. That’s how we became the United States of Ponzi.

Banks made interest-only, zero down payment liar loans to NINJA (no income, no jobs and assets) borrowers at initial teaser rates.

Private equity firms did over a $1 trillion of leveraged buyouts with a debt-to-earnings ratio of 10 or above.

Consumers allowed their debt relative to income to soar to 135 percent today from 65 percent in 1994.

“An economy where the total debt to GDP ratio (of households, financial firms and corporations) is now 350 percent is a Madoff Ponzi economy,” Roubini says.

All of which led to the United States to become the largest net foreign debtor in the world — and possibly defaulting on its foreign debt.

“In the short run, the need is to get the economy going again and to get the private financial system working again and to reactivate those markets,” National Economic Council Chairman Lawrence Summers commented after giving a speech at the Brookings Institution today.

Summers added that if China’s Premier Wen is worried about his country’s holdings in U.S. Treasuries now, he would have been more concerned had the Obama administration not “put a large economic stimulus in place.”

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For more than 10 years, millions of Americans ran their own personal Ponzi schemes, says NYU economist Nouriel Roubini."When you put zero down on your home, and you thus have no equity in your home, your leverage is literally infinite and you are playing a Ponzi game,"...
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Thursday, 19 Mar 2009 09:48 AM
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