Roubini Applauds Europe, Warns of Perfect Storm Potential

(November 16, 2012) — Nouriel Roubini, one of the world’s top economic forecasters, has praised the recent actions by the European Central Bank (ECB) in tackling the Eurozone crisis, but warned that 2013 still presented danger on many fronts.

In an interview with Bloomberg TV in Turkey, the so-called Dr Doom said actions taken by the ECB had significantly helped the region’s struggling economy. He implied, however, that these actions had taken rather too long as leaders had failed to realise the severity of the economic situation. It was announced this week that the Eurozone had slipped back into recession.

“I fear that the recession in the Eurozone, especially in the periphery – the countries that are in trouble, Greece, Ireland, Portugal, Italy, Spain, Cyprus and so on, may continue into 2013 and beyond,” said Roubini.

He cited “front-loaded fiscal austerity”, which he claimed was recessionary, and the value of the euro, which remained too strong for the periphery to regain competitiveness. He also said there was a credit crunch occurring in the periphery as the countries’ banks did not have enough capital to be able to lend to businesses.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

However, Roubini cited “rays of hope” in the Eurozone.

“The ECB has taken a more active role, trying to limit the tail risks with the new Outright Monetary Transactions (OMT) programme. Secondly there is this new pot of money, the European Stability Mechanism (ESM) – €500 billion – that can help the countries in trouble. Three, now the Europeans are talking about a political union, a banking union, a fiscal union, an economic union – it’s easier said than done, but at least they are having to discuss plans that are leading in that direction.”

Elsewhere there are still dark clouds on the horizon, the economist warned. Roubini said unrest in the Middle East might not turn into full-scale war, but the threat of it happening could serve to push up oil prices and damage the world economy.

He added that he believed politicians in the United States would act together to avoid the so-called fiscal cliff, but there would still be a fiscal drag on the world’s largest economy that would be equivalent to 1.5% of its GDP.

Roubini concluded that his baseline scenario was not one of a “perfect storm”, but developed markets would see slow – and sometimes slower – growth and deep recessions for some emerging markets.

To watch the full interview, click here.

(November 16, 2012) – Alan Hevesi, the former New York Comptroller and head of the $129.4 billion New York State Common Retirement Fund, will be released from prison in time for the holidays.

Hevesi, 72, was granted parole after serving 19 months in prison on corruption charges for misuse of pension fund assets. Hevesi pleaded guilty in a pay-to-play scandal in 2010 after an investigation led by then-Attorney General Andrew Cuomo turned up “unlicensed placement agents, secret fees,” and favorable treatment of certain money managers who were major campaign contributors, according to a release from the attorney general’s office.

He had been sentenced to between one and four years in jail, and was held in a medium-security prison in Marcy, New York.

At a parole hearing last year, Hevesi was repentant, according to New York Times reports.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“I’m certainly guilty,” he said, adding, “I have time in prison to think through all the people that I’ve hurt.” Asked by the board then what he would have done differently, he said: “Not being moronically stupid.”

While Hevesi was the sole trustee of the state pension fund, he was not cited as the ringleader in the pay-to-play scandal. After his probe into the case, Cuomo accused Hevesi’s chief political consultant, Hank Morris, of leading a $35 million corruption scheme.

In fact, the former CIO of the New York State Common Retirement Fund (CRF), David Loglisci, pleaded guiltily along with the others, but received no jail time. The New York county grand jury’s 2009 indictment of Loglisci and Morris alleged that the CIO was little more than a pawn for the political strategist. The documents claimed that Morris and others arranged Loglisci’s appointment to CIO to facilitate “corruption of the alternative asset investment process.” In 2004, according to the indictment, these senior officials “determined that the original CIO of the CRF was not sufficiently accommodating” to Morris and his associates. Morris “participated in the decision to remove the original CIO and promote defendant Loglisci to that position.

Morris faced a parole board at the same time as Hevesi, but met a different end.

“After a review of the record, interview and extensive deliberations, the panel has determined that if released at this time, there is a reasonable probability that you would not live and remain at liberty without again violating the law and your release would be incompatible with the welfare of society,” the parole panel wrote in its decision.