Editor’s note: This article was first published in December 2011. The old investor is described as 72 years old, and Roubini’s view that the crisis had no end in sight within five years was his forecast at that time.
The crisis seems to have caught politicians, bankers and, of course, ordinary citizens around the world by surprise. I can’t say it was a surprise for me, because the truth is that I had been warned it was coming since 2006. In fact, everyone was warned, although some didn’t want to hear the message. Back then I had no website or blog and didn’t use social media, at least not professionally. If I had, you can be sure I would have written about what was coming, even knowing that readers would have labelled me a pessimist, a paranoiac or a troublemaker.
If a government economic adviser, a financial analyst or an economist was unable to foresee a financial crisis of this size, I’m sorry, but they should tell us whom they had to do favours for to get their job. Here are the 4 people who warned me about the crisis.
1. Nouriel Roubini.
We have already talked in another article about this man, nicknamed Dr. Doom, a Harvard economist and former financial adviser to the US Treasury Department. He predicted the crash of the US housing market early enough for the situation to have been fixed and for the effects of the current financial crisis to have been softened. Poor madman, who thought someone would listen to his perfectly well-founded theory. Today he maintains that this crisis has no end in sight within the next five years.
One Saturday in July 2006, while I was sunbathing on the beach, an article by Roubini fell into my hands, warning of the financial chaos that would arrive a year later. He didn’t waver in his theory, he hadn’t the slightest doubt about it, and he even said he had already got rid of all his shares. That article set off the alarm for me, because once I had analysed the data he referred to, it became clear to me that the state of credit and the constant rises in house prices were unsustainable. It wasn’t a question of knowing economics, but of using, as we have said so many times, the least common of the senses: common sense.
2. An old investor.
You could say that part of whatever I know about investing, little or much, I owe to a man who is now 72 years old. He probably doesn’t know what warrants, ETFs or CDs are, and doesn’t want to know. He likes the stock market; he loves the stock market. He is the only investor with principles I have ever met. He sold all his shares in pharmaceutical companies when he concluded that there might be some very “shady” business behind them.
One morning, while we were going over the day’s business and preparing our investment portfolio with an investment bank, a portfolio full of bank shares and exposure to the property market, he called them “idiots”, because he couldn’t understand how supposed experts and analysts, who should know that every share has a floor and a ceiling, couldn’t see that we had hit the ceiling years before.
Those gentlemen in their ties and Emidio Tucci suits thought the old man had lost his mind. Fourteen days later the TV news announced the collapse of Lehman Brothers. Luckily, the nine of us who had been in the room had sold all our shares eight days earlier.
3. An old drunk.
One morning at 9:45, while I was having breakfast in a crowded café, there was an elderly man at the back, somewhat drunk, who had been drinking whisky since seven in the morning and boasting that he had sold a plot of land, rezoned for development, for 5 million euros. Only five years earlier that plot had been rural land that, with luck, might have sold for €100,000. A housing development was going to be built on it. I remember my coffee going cold as I did some quick sums on the price the homes would have to sell for to make the purchase profitable for the builder, and however hard I tried, I couldn’t make the numbers work to get a reasonable price for a middle-class family.
See also: Spanish stocks: technically, get the lifejackets ready; on fundamentals, every man for himself
Then I wondered where the problem was, since the bank would have no trouble granting the loan to a working family. And that was precisely the problem: the bank would give a loan without a second thought to the first person who walked through the branch door. Someone could easily get a loan larger than everything they would earn in their entire working life. Is there any clearer sign than that?
4. A labourer who became a builder.
I have known many site managers, builders and developers. Many of them had the same complaint: their own workers would set up on their own and start competing with them. That is fine in itself, because it shows that for a while the entrepreneurial spirit in Spain was encouraged.
But it is not a good sign when a building labourer, with no experience running a business and no experience in construction, sets up on his own and, in less than 12 months, a man who has never seen more than €1,300 at once tells you he has made 2 million euros. For a smaller sign than that, NASA would declare a red alert.
Did nobody really see the crisis coming? Does that mean our politicians pay millions of euros to financial advisers who were unable to predict a crisis that was being shouted from the rooftops?
Featured image: Kjetil Ree, CC BY-SA 3.0, via Wikimedia Commons.
