San Francisco, CA (PRWEB) January 14, 2009
Bestselling author and former investment banker John Talbott has accurately predicted in great detail in his previous books much of the major financial and economic crisis we are currently facing.
Here are but a few of Talbott's latest predictions from his new book, Contagion.
- Housing prices will continue down for another two to three years as the subprime mortgage crisis spreads to higher quality prime loans with some California cities seeing declines of as much as 58%.
- The U.S. stock market will see new lows as there is no new credit available to support unnecessary consumption and everyone needs to decrease debt leverage.
- Home prices in the UK, Ireland, Spain, Australia and New Zealand will collapse with declines of 40% or more.
- China's economy will not only stall but its GDP will contract as there is no market for its exported manufactured goods.
- Country bankruptcies are next with Russia and Venezuela on the brink with $40 oil and Argentina and Hungary not far behind.
- Hundreds of municipal and state governments across the US will begin to claim bankruptcy as their property, income and sales tax revenues stall in the face of exploding retiree costs.
- The current crisis will extend years and bleed into the retirement of the baby boom which will be extremely costly to GDP going forward insuring a very long-lived recession.
Talbott believes that the approaches taken to date to solve this crisis are only expensive bandaids that do nothing to address the underlying causes. He recommends:
1. Shutting down the $65 trillion Credit Default Swap market which is so interconnected that it makes almost every financial firm too big to fail and turns a capitalist free market system into a socialist system in which taxpayers prop up failing businesses.
2. Bank leverage that approached 25 to 35 times debt to equity ratios has to be reined in with global regulations preventing any bank from exceeding 10 times its equity base.
3. Managements must be made more accountable to shareholders and their motivations must be brought better in line with shareholders by increasing the power of outside directors on boards and fixing employee compensation so it has both upsides and downsides if too much risk is taken.
4. The reason the credit markets froze is because no one knows who holds which assets and what guarantees companies and banks have extended. Complete transparency is the key with all assets and liabilities and guarantees being disclosed for all financial institutions immediately on the internet.
5. Hedge funds and private equity firms have to be transparent and regulated immediately. The only real objection to greater transparency will be if these institutions are doing something illegal, either insider trading, market manipulation or avoiding capital adequacy ratios.
6. The only way to reduce leverage everywhere in an economy at once is to inflate one's currency. While painful economically, debt loads on businesses, banks and our government will retard growth for decades if not addressed now.
7. The most important thing government can do to address this crisis is to create a very rapid bankruptcy process for banks, businesses and individuals that will allow a restructuring of creditor claims in weeks, not years. It is ridiculous for taxpayers to put money into banks and businesses before their own debt investors take a single dollar haircut to their capital.
8. This financial crisis, as well as the problems we face in healthcare, global warming, energy policy, etc. cannot be effectively addressed until we stop corporate lobbying in Washington. The recent bailouts prove that corporations, not American citizens, still have a stranglehold on our elected representatives, which is the primary reason they were granted such latitude with deregulation that caused this mess to begin with.
In 2003, Talbott predicted the housing market collapse in his bestselling book, The Coming Crash in the Housing Market. In that book he warned that Fannie Mae and Freddie Mac's business models were unsustainable, predicted that the housing collapse would be national in scope and would threaten the very solvency of our largest financial institutions. In 2006, he foretold the peak in housing prices in Sell Now! The End of the Housing Bubble, a timely sequel to his bestseller in which he was widely vilified for suggesting that certain cities on our coasts could see home price declines as big as 58%, a number that now looks spookily conservative. This year, he insightfully probed the bottom-up economic policies that would guide Barack Obama to the White House in his book Obamanomics when everyone else was certain Hillary Clinton would be the Democratic Party nominee. Recently he has been a leading voice against Paulson's TARP plan, against giving free money to the auto companies and against bailouts, tax cuts and fiscal stimulus plans that will unsuccessfully try to prop our GDP up at unsustainable levels achieved over the last decade through massive borrowing and spending by consumers, businesses, banks and our government.
About the Author:
John R. Talbott is a former investment banker for Goldman Sachs in New York City and recently was a Visiting Scholar at UCLA's Anderson School of Management in Los Angeles. He has published six popular books in the field of economics and politics, numerous research papers on subjects as varied as global poverty, AIDS, the importance of democracy and a free press for global economic development and improving inequality in the world, and many newspaper and magazine articles. Talbott is regarded as the first person to warn the public about the current housing and mortgage mess in his 2003 book, The Coming Crash of the Housing Market. His January 2006 book, Sell Now! The End of the Housing Bubble, accurately predicted the absolute peak in the housing and mortgage markets. Talbott has appeared on CNN, Fox News, CNNfn, CNBC, CBS Marketwatch and in print in the Wall Street Journal, the Financial Times, the San Francisco Chronicle, the Economic Times of India and the Boston Globe. His previous books were reviewed in the Wall Street Journal and the Los Angeles Times and he has spoken live on numerous nationally syndicated radio programs across the U.S. and Canada. Talbott graduated with a BS in Civil Engineering from Cornell University and holds an MBA in finance from UCLA's Anderson School.
by John R. Talbott
Wiley; January 2009; $24.95
Founded in 1807, John Wiley & Sons, Inc. has been a valued source of information and understanding for 200 years, helping people around the world meet their needs and fulfill their aspirations. Wiley's core businesses include scientific, technical, and medical journals; encyclopedias, books, and online products and services; professional and consumer books and subscription services; and educational materials for undergraduate and graduate students and lifelong learners. Wiley's global headquarters are located in Hoboken, New Jersey with operations in the U.S., Europe, Asia, Canada, and Australia. http://www.wiley.com.