Roubini ratio getting fuzzy

How far along are we in the credit crunch?  One heretofore reliable indicator has become rather fuzzy.

Constant readers will recall last spring I developed the Roubini Ratio — the writedown forecasts from conventional analysts divided by NYU professor Nouriel Roubini's forecast of $1 trillion.  At the time, it was about .5

The problem now is that some conventional forecasts have exceeded Roubini's figure — Bridgewater Associates reckoned $1.6 trillion a few weeks ago — and now Roubini is giving himself significant margin for error:

The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron's in Sunday's edition.

Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said — at least $1 trillion and more likely $2 trillion.

Whatever the figure, Roubini appears more pessimistic than another rare truth-teller outside the Agora Financial firmament — Oppenheimer's Meredith Whitney.  She figures we're about halfway done with all the writedowns, which to date total $350 billion.

So what are the next shoes to drop?  Well for starters, the blank-check bailout of Fannie and Freddie have now given those two august institutions the courage, if that's what you want to call it, to increase their loss estimates. 

And now that the subprime mess is subsiding, establishment media are starting to acknowledge that even worse is to come.  Alt-A delinquencies (loans to borrowers with decent credit who nonetheless didn't want to offer proof of income) have quadrupled over the last year, and prime loan delinquencies have doubled.  The New York Times reports, "While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said."

That jibes with Roubini's outlook.  So prepare accordingly.

Now, allow me to issue a plea to my former colleagues in the news media: STOP calling this the "subprime crisis," if you haven't by now.  Those were never the only kinds of mortgages at risk, as even the Gray Lady now sees.  And the problem isn't the mortgages as much as it is the fact housing prices grew completely out of proportion to other prices from 1996 to 2006 and now must revert to the mean — perhaps after falling well below the mean.