In a short but scathing op-ed published in this past weekend's New York Times, Morgan Stanley Asia chairman Stephen Roach says that the "American economy is slipping into its second post-bubble recession in seven years," and blames the Fed for "ignoring ... excesses in asset markets." In discussing what he sees ahead:
This recession will be deeper than the shallow contraction earlier in this decade. The dot-com-led downturn was set off by a collapse in business capital spending, which at its peak in 2000 accounted for only 13 percent of the country's gross domestic product. The current recession is all about the coming capitulation of the American consumer — whose spending now accounts for a record 72 percent of G.D.P.
The Morgan Stanley exec clearly places the blame at the feet of former Federal Reserve chairman Alan Greenspan, saying that "America's central bank has mismanaged the biggest risk of our times." Roach is pretty well known on Wall Street for his contrarian approach, and has been warning of problems ahead since at least 2004, when he somewhat infamously characterized the American consumer as "an accident waiting to happen." Something tells me, however, that every investment bank economist (and certainly most chairmen) would rather blame the Fed for the excesses of the past few years than take a look at their own risk management practices. Roach's op-ed, whether intentional or not, ends up feeling that way. Quite a few sources I've spoken to have said quietly that there were at least some risk managers at various Wall Street investment banking houses that had sounded the alarm, but were overruled or drowned out by a chorus of executives blinded by impossibly high short-term yields.