Ponzi Nation: We Are All Madoff Now

A host of regulators and law enforcement agencies are currently investigating hundreds of possible financial scams, including numerous Ponzi schemes. Reuters provides a rundown of some of these investigations, quoting one regulator who said the country was suffering from ”rampant Ponzimonium.”

NYU economist Nouriel Roubini took things a step further in his latest column for Forbes, titled ”The United States of Ponzi.” Bernie Madoff is “the mirror of the American economy” Roubini declares, ”and of its over-leveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now collapsed in a heap.”

Roubini goes on to describe the multiple Ponzi schemes that have operated at every level of the economy for “a decade or even longer,” ranging from homeowners borrowing against nonexistent equity, to banks issuing NINJA (no income, no jobs and assets) loans, to private equity firms with huge debt-to-earnings ratios. What’s more, he warns:

A government that will issue trillions of dollars of new debt to pay for this severe recession and socialize private losses may risk becoming a Ponzi government if–in the medium term–it does not return to fiscal discipline and debt sustainability.

A country that has–for over 25 years–spent more than income and thus run an endless string of current account deficit–and has thus become the largest net foreign debtor in the world (with net foreign liabilities that are likely to be over $3 trillion by the end of this year)–is also a Ponzi country that may eventually default on its foreign debt if it does not, over time, tighten its belt…

Roubini has long been issuing warnings about the bubble economy, and most of his grim prognostications have proved correct. He is, in effect, the anti-Jim Cramer, whose overly optimistic CNBC takes on Wall Street were recently ravaged by Jon Stewart. But in business-friendly Forbes, this prescient realist’s columns run under the heading “Doctor Doom.”

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