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‘Dr. Doom’ says markets may face temporary closures

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Economist Nouriel Roubini, who predicted much of the financial catastrophe that has unfolded worldwide over the last year, now says governments may have to temporarily close markets as a way to try to halt another massive wave of selling.

Roubini, an economics professor at New York University and head of Roubini Global Economics, warned a conference of hedge fund managers in London on Thursday that the risk to the financial system ‘has become bigger and bigger’ and could result in market ‘holidays’ ordered by desperate governments.

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From Bloomberg News:

‘We’ve reached a situation of sheer panic,’ Roubini said. . . . ‘There will be massive dumping of assets’ and ‘hundreds of hedge funds are going to go bust.’ ‘Systemic risk has become bigger and bigger,’ Roubini said at the Hedge 2008 conference. ‘Don’t be surprised if policymakers need to close down markets for a week or two in coming days,’ he said.

Although the U.S. Standard & Poor’s 500 index is down a relatively modest 3.4% this week, net losses have been much more severe in many foreign markets over the last four days. The German market has fallen 5.5% this week, Brazilian stocks are down 7.1% and the South Korean market has tumbled 11.1%.

‘There are about a dozen emerging markets that are now in severe financial trouble,’ Roubini said. ‘Even a small country can have a systemic effect on the global economy,’ he said. ‘There is not going to be enough IMF money to support them.’

Roubini has become a celebrity in the financial world for accurately calling this credit debacle, earning him the ‘Dr. Doom’ moniker. But I couldn’t tell from his comments on Thursday whether he believed that declaring a market holiday would be a smart idea.

After the U.S. closed down Wall Street for four days after the Sept. 11, 2001, terrorist attacks, some people figured that investors would be dissuaded from selling when markets reopened.

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Instead, the Dow industrials dived 7.1% on the first day of trading after the halt and continued falling the rest of the week, losing 14.3% for the five days.

Now, as then, wouldn’t a holiday just make people more desperate to sell as soon as the market reopens?

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