Bad banks — New Zealand’s black sheep

By Paola Harvey
from Green Left Weekly, Australia
30 January 2010

Although New Zealand, like Australia, has not been as badly affected by the global economic crisis as the US or Europe, workers are facing hardship.

Bronwen Beechey, an activist from Socialist Worker New Zealand (SWNZ), told Green Left Weekly: “There’ have been a lot of redundancies, places have been closed down.”

Beechey and SWNZ activist Peter Hughes were in Sydney to attend the January 3-6 Socialist Alliance national conference. They spoke to GLW about the SWNZ’s “bad banks” campaign, which takes aim at the cause of the global financial crisis — neoliberal capitalism.

“For people on low incomes life’s just been getting tougher because [they are] losing their jobs and food prices and rents and all of it have not come down substantially”, Beechey said.

“All the indicators, the social services, people asking for assistance, for food parcels, people losing their homes — they’ve all skyrocketed.”

Hughes said employers have used the crisis to justify attacking workers’ wages and conditions. “In the last 12 months, there have been no less than eight lockouts of workers.

“One of the most shameful examples was a service provider for the elderly that insisted that if the workers in that field did not accept the minimum wage [NZ$12.50 per hour] they’d be locked out.

“That’s quite a serious indication of how they [the bosses] see the crisis being resolved to their advantage and workers’ disadvantage.”

The New Zealand government’s response has been the same as capitalist governments around the world — bail out the banks and the big capitalists, and make the workers pay.

But they are not getting it all their own way. The government’s attempt to impose an unofficial wage freeze in the public service was recently challenged. Support staff in the education sector won a small wage rise.

That win will set the tone for the upcoming nurses’ and general education unions’ wage negotiations. “No less than that, will be the call, I’m sure”, said Hughes. “So that’s a good sign.

“I heard at the [Socialist Alliance] conference, that [Australian Prime Minister Kevin Rudd] said that the recovery’s going to be worse than the recession.

“I’m quite sure that’s their intention for us in New Zealand as well, working people will be made to pay for the recovery — if there’s going to be one.

“But our assessment is that there can be no real recovery in the current market economy, not in the foreseeable future. That’s going to lead to all sorts of crises for them, which they will try to push on us.

“We have to organise people to resist that.”

The discussion about neoliberalism at the NZ Council of Trade Unions’ 2009 conference has opened up more space on the left to fight back against these future crises.

At the conference, union activists talked about workers’ cooperatives, building and strengthening the union movement and not accepting the neoliberal capitalist model as the only option.

Beechey said: “It also talk[ed] about climate change and the need for an alternative economic strategy which is an implicit criticism of neoliberal capitalism.”

Hughes added: “While it’s not a policy position as such, it’s a discussion that’s been opened up within the trade union movement.

“It’s not an accepted policy, it could be watered down significantly and it’ll come down to how different unions interpret that for building a broader perspective in the membership.

“[But] when you think about how closely linked the trade union movement has been to the Labour Party … this is a departure.

“The fact that they’re daring to criticise publicly this position opens up a space on the left for us to work with trade union activists in a much more healthy and progressive way.”

Many people in New Zealand continue to struggle with little indication of their situation improving in the near future.

There has been an increase in the number of houses sold due to people defaulting on their home loans. A large proportion of these have been people with one home — not property speculators.

Hughes said the defaulters “simply cannot pay because they’ve lost their job, they’ve been made redundant and they have reduced incomes”.

“That’s pretty devastating for families and has shown no sign of abating at all.”

The actions of the banks have been completely shameful. Before the crisis, banks were advertising loans for 100% of the price of a house.

But after the crisis, their ruthless approach to lending has meant many people who were lured into the property market by these loans have had their home repossessed.

“Our campaign around ‘bad banks’ is trying to make them pay really”, said Hughes. “Because they’re the ones that have played a big role [in the crisis] and they’re plundering the profits of working people.”

The bad banks campaign is focusing on demystifying what the banks actually do and how they caused the financial crisis. It is also calling for a financial transaction tax, as opposed to a goods and services tax.

A GST is a regressive tax, that is it affects the poorest the most, because the poor are taxed the same as the rich for goods despite having less ability to pay.

A financial transaction tax, on the other hand, would be a progressive tax. It would affect banks, corporations and the wealthy the most, because they account for the vast majority of financial transactions.

“We see the bad banks campaign as striking right to the heart of neo-liberalism”, Hughes said. “These banks have got their fingers in the lives of every working class person, whether it’s controlling their mortgage, their credit card, or their bank charges.

“They’re bloody pillaging basically. Their pockets are huge, they’re not paying their taxes.

“They’re not very popular with workers at the moment.”

Council of Trade Unions turning towards class struggle?

Could a column by Helen Kelly in last Monday's Dominion Post (below) signal a turning point for the union movement?

 

There's no doubt that the opinion piece by the Council of Trade Unions president is significant – both for what it says, and for what it doesn't say.
 

First of all, Helen Kelly's column connects three separate attacks on groups of workers and explains them in terms of wider economic and political forces.
 

Her analysis is correct. Of course the disputes at Telecom, at Open Country Cheese and on the Auckland buses are related.
 

But for decades now, it's been rare to hear union leaders to treat disputes this way.
 

Fundamentally, what Helen Kelly is talking about is a common cause shared by different groups of workers – and a common mindset among employers. She's talking, in other words, about a class struggle.
 

As she acknowledges, this is a shift in perspective from the leaders of the union movement. 
 

And yet, after announcing this shift in bold terms her concluding paragraph seems oddly out of place. It's an appeal for the employers (and the National-led government) to start "working cooperatively" with unions again.
 

The jarring inconsistency is because of what the column does not say. Having explained the forces leading employers to use bully boy tactics – forces which are not about to go away – the CTU president says nothing on what unions are going to do about it.
 

This much has not changed. For many years, the CTU has focused its energies on appeals to the government to solve the union movement's problems, rather than organising independent working class action to achieve the movement's goals through its own collective strength.
 

It might be argued that the business pages of a daily newspaper are not the place to lay out the strategy of the union movement, and that behind the scenes the CTU is doing a lot to organise opposition to bullying employers like Telecom, Open Country and NZ Bus.
 

But you can't rally workers, and the broader public, around a banner that's kept hidden behind the scenes. Class struggle demands mass organisation, which takes place out in the open.
 

Somewhere, sometime soon, union leaders will have to lead. The analysis contained in Helen Kelly's column calls for a strategy of coordinated, mass resistance by the union movement as a whole.

Employers quick to use bully tactics

Helen Kelly

BUSINESS FORUM

INDUSTRIAL relations in New Zealand seem to have taken a turn for the worse in recent months. Bus drivers and dairy workers find themselves locked out by their employers and Telecom engineers have been made redundant en masse and are refusing to buy back their jobs while the network rapidly crumbles.

Until recently the reaction to the global downturn in New Zealand was characterised by a willingness on the part of workers, unions and employers to work together to mitigate the worst effects of the recession.

The jobs summit and the nine day fortnight are examples of that. Is there some reason why it has all gone sour?

Each of these disputes has different origins. Only one is straightforward, about pay and conditions. Another is about every worker's right to bargain collectively, and the last is about an attempt to shift cost and risk on to a workforce at the expense of their job security, livelihoods and bargaining power under the cloak of "contracting out" through a third party.

On the face of it the global crisis has nothing to do with any of these disputes. Significantly, none of the three employers – Telecom, Talley's and NZ Bus – is in any way struggling financially. But there is little doubt that the recession is a factor in the way they are handling the disputes.

Although redundancies are not being forced on any of these employers, there is an implication that workers should feel damned lucky to have a job in the current economic climate and should accept whatever wages and conditions are tossed their way.

There's a recession on, don't you know? Belts must be tightened.

I don't know how many holes Telecom boss Paul Reynolds has on his $5 million belt but I don't see much tightening going on there.

That's not boardroom bonus jealousy. I think it's legitimate to ask why these companies are taking such a hard line against the workers who are delivering their respectable profits in tough times.

The truth is that they are looking at the unemployment figures and thinking that now would be a good time to stamp on wages, hours, and workers' bargaining power. Workers will not put up a fight, they think, while fear of the lengthening dole queues prevails.

Unfortunately, the employers got it wrong. Workers are perfectly capable of understanding the situation of their employer and acting accordingly. Hence the many settlements that have been reached in recent months where unions have acted reasonably and responsibly and employers have offered fair and realistic terms.

Unemployment is a real fear for many New Zealanders. But there are plenty who know that their companies are doing well enough, and they are not about to bow down to employers who throw their toys out of the pram at the first sign of resistance to their plans. Both of the current lockouts are gross over-reactions.

The actions of Talley's-owned Open Country Cheese in particular, where a wholly disproportionate and illegal six-week lockout has been accompanied by intimidation of union members, use of strike breaking outside labour and misinformation, are reminiscent of the bad old days of industrial strife.

All this in response to the employees simply exercising their legal right to union representation and to bargain collectively. Someone is living in the past here, and it is not the Dairy Workers' Union.

The union has worked harmoniously with employers and has not been engaged in any serious industrial action for more than 20 years. It is sad and so unnecessary and you have to wonder why Open Country acted with such unwarranted ferocity.

Could last year's change of government be an influence? The Government wasted little time when it carne into office before forcing through its removal of unfair dismissal rights from new employees in small firms in the first 90 days of their contracts. There was no good economic reason for this move, but it immediately set a tone for its attitude to workers' rights. Cuts to public sector payrolls, moves to make the fourth week of annual leave sellable and other policies that have negative impacts on working people seem to confirm the impression of an administration more behind the cause of the employer than the employee.

None of these moves would have any positive effect on the country's productivity, its ability to pull out of recession or the length of the dole queues.

The Jobs Summit and support for the nine-day fortnight present a different face of the Government, albeit one which has had limited effect. We would all be better off if employers took their lead from this approach. What will be positive is employers dealing honestly and openly with unions and employees, working cooperatively in the best interests of each enterprise and not reaching for the factory keys as a negotiating tool.

Living Wage campaign: Wellington Public Meeting video

A couple of dozen grassroots campaigners gathered in Wellington on August 9 to organise community support for Unite Union’s campaign to raise the minimum wage. The goal of the campaign is to gather the 300,000+ petition signatures needed to trigger a Citizens Initiated Referendum asking, “Should the adult minimum wage be raised in steps over the next three years, starting with an immediate rise to $15 per hour, until it reaches 66% of the average total hourly earnings as defined in the Quarterly Employment Survey?” Matt Jones from Unite talked about why the union had decided to initiate the petition, and how the campaign was going so far. “We’re still putting our feelers out to the wider activist communities across New Zealand to try and get a support base”, he said, “before we push out into the streets and make our campaign known to the wider public. So we're still at the initial stage where we make our arguments to people such as yourselves.” Although the immediate goal of a $15 minimum wage, and then linking the rate to 66% of the average wage, are both in line with Council of Trade Unions policy, there's been a noticeable lack of active, top-level support from most other unions. One exception is the Maritime Union of New Zealand. Joe Fleetwood from MUNZ talked about how his union was gathering signatures, and also how he saw it fitting into the wider political picture. “The flyer and the petition went out. Our communications officer put that into all our magazines, that go to about 3,000 members. All worksites down on the wharf – especially our passenger vessels – have got these packs already. Our young activists are out there asking passengers, while they're travelling on the ferries, to sign the petition.” The public meeting was jointly organised by RAM – Residents Action Movement, and the Alliance Party. Growing cooperation between these two parties in Wellington had already seen the start of joint street stalls, gathering petition signatures. “Small parties like RAM, the Alliance and the Workers Party have stood in elections and campaigned against the market-driven policies of National and Labour”, said RAM chair Grant Brookes. “But what we urgently need is a bigger, broader, more united Left that can take the fight to National and become a credible alternative for all those without a voice. The petition can bring together Left and grassroots activists – like those of us in this room – and build connections for joint action and cooperation in other areas as well.” After the meeting, RAM and the Alliance decided to take their collaboration further by producing a joint leaflet. To get involved with the community campaign, or help out on the Saturday street stalls in Lower Hutt, Newtown and other areas, contact Grant on 021 053 2973.

The growing rash of lockouts must be nipped in the bud

by Auckland Union Activist 27 April 2009 Only wide spread militant solidarity actions can beat a lockout. As the recession deepens, business and governments friendly to business will try to put the burden of their collapsing profits onto workers, rather than their rich stake-holders. Employers are using lockouts to intimidate workers and their unions to accept often arbitrary and unfair demands. Air New Zealand General Manager for short haul, Bruce Parton, announcing the lockout of Air NZ workers, alluded to the recession as the reason for locking out his staff. Referring to the offer tabled by Air NZ, Parton said: "Now is not the time to look a gift horse in the mouth." We must not be intimidated. The history of the 1873 and 1929 depressions showed that unions that lowered their expectations and accommodated employer’s demands went out of business. This is fact. The brutal truth is, if a union can't defend you, it’s then not in your interests to be in one. In a time of mass redundancies union members are often the first down the road, to be replaced with casual, or contract workers, who are generally not in unions. One result of the economic slumps of the past was a drop in union membership. Unions only recovered when in desperation grassroots movements sprung up that championed workers’ demands militantly and relentlessly. Using tactics of widespread solidarity, the biggest growth of unions in history occurred in the depths of the depression in the USA. Through these more militant tactics workers were able to keep more of the wealth they had created for themselves. This big increase in buying power at the bottom of the economy is one of the reasons that the depression started to lift. Only an injection of cash at the bottom of society can ease the recession, but the employers refuse to accept this fact because it will mean they must accept cuts in their profits. As every serious economist is saying, the rich are not prepared to invest their money because they are frightened of getting burned again. The main reason is their very real fear that the people they loan money too will not pay it back. Decades of real declining incomes have only been obscured by debt. US statistics have shown that despite falling real incomes over the last ten years, consumption had been going up. This was the so-called bubble economy. The only way we can possibly get out of this mess is increase workers’ expectations. Therefore: 1. We must not take part in the recession. 2. We must say this is your crisis we will not be part of it. 3. We must learn from history. 4. Employer lockouts must be immediately met with escalated solidarity actions from our side. Starting now, the CTU, as the overarching body of New Zealand unions, should take every lockout seriously and publicly call for the widest solidarity actions possible to smash them. Otherwise employers will increasingly use lockouts as a weapon to intimidate workers and ultimately drive unions from the workplace. See Lock-out Notice Issued to EPMU

National government to borrow $40 billion over 3 years

TVNZ Press Release 22 March 2009 Prime Minister John Key has unveiled a new economic initiative to borrow $40 billion to help NZ through the recession and believes we will come out of it “reasonably aggressively” in a year’s time during an interview with Political Editor, Guyon Espiner this morning on TVNZ’s new political show Q+A. Points of interest: - PM said Govt would borrow $40 Billion over next 3 years - PM refused to commit to 2010 & 2011 tax cuts - PM believes NZ will be coming out of recession “reasonably aggressively” in year’s time after 2-3 quarters of negative growth - Treasury estimates tax cuts will mean a 5% reduction in Government revenue See transcription of full interview at http://www.scoop.co.nz/stories/PO0903/S00241.htm See also It’s Time for a New Monetary System for another possibility to government debt.

Challenge the system

by Auckland union activist 7 January 2009 During a recession, what are the priorities in a class divided society? Is it meeting human needs and dealing with the worsening of world poverty and hunger? Or is it refilling the coffers of bankrupt millionaires? Are the brutal effects of capitalism apparent only in a recession, or were they always there? Latest figures show that governments around the world have collectively spent around $13.39 trillion of their people's taxes to bail out wealthy stockbrokers and bankers (a figure which is expected to be increase). UN statistics reveal that the cost of ending world hunger completely (as well as the many diseases caused by poverty) is $329 billion a year, only a fraction of the tax money given to the worlds wealthy to bail out their biggest failed profiteers. $13.39 trillion would, according to the UN figures, completely pay for eliminating poverty and hunger for 40 years! These are indisputably the bald figures of a class divided world. If poverty can be so easily relieved by just diverting our taxes to it, then redirecting the massive private surpluses of capitalist production to meet social needs, instead of the profits of the rich, could totally eliminate poverty altogether. The inequalities, exploitation and crisis that afflict capitalism is an inescapable product of the market system itself. Logically we should go further than just relieving poverty. To be rid of poverty and economic crisis we need to be striving to build a broad movement of people that aims to achieve structural change. We simply have to challenge the whole system and its destructive logic.

The worst is not behind us: Beware of those who say we've hit the bottom

by Nouriel Roubini from Forbes.com 13 November 2008 It is useful, at this juncture, to stand back and survey the economic landscape – both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:

Continue

Broad left party to fight the causes of recession

by Pat O'Dea I found this post on Tumeke. I thought it quite thought provoking. Yes a recession could bring a sharp swing to the right, and the politics of division. As Tim Selwyn points out, the dominos are all lined up and could easily fall that way. But it is not inevitable, and it doesn't have to be that way. I feel Tim Selwyn hasn't given the whole story. History shows that there needs to be a political movement to channel and foster divisions and fear that would come with the slump, and try and take advantage of these fears by scapegoating immigrants and/or minorities. In this country this role has been carried out by NZ First, with mixed results. But their political star is fading. Let's hope it stays that way. The temptation for Winston Peters and his ilk will be to relaunch their party in a much more open and virulently racist way to gain opportunist advantage from the slump. The other factor that would weigh in the opposite direction is the creation of a broad left all inclusive party that wants to fight the causes of the recession and defend grass roots communities from its effects. As a necessary part of this campaign the new Broad Left Party will naturally need to unite all the grassroots peoples and movements to be able to be able to achieve any of their aims, this strategy would leave no room for racism or scapegoating. The R word: Large numbers of immigrants + Local population + Recession = *Racism.* Posted by Tim Selwyn @ 2:28 PM Tuesday, March 18, 2008 http://tumeke.blogspot.com/2008/03/r-word.html%3E/ That's usually how it works. Everything's fine - on the surface - until an economic slump occurs whereby competition intensifies over scarceresources (esp. jobs, govt. assistance and housing) resulting inanimosity between competing groups, viz: the local born (or well-integrated non-identifiably immigrant/foreign) population and the foreign-born (or more readily identifiably immigrant/foreign) population. NZ since the recession of '91-'92, has had rapid immigration growth esp. of people not Maori or European. That time has been marked by modest economic growth. I have argued in the past that it was the immigration itself that has largely contributed to that growth. My question is what happens if that stops? Do the recent immigrants without deep roots here go to Australia (as they have been doing in increasing numbers already)? Or do they return to their country of origin (as some of the more wealthy may have done as they have good connexions and family)? Or do they stay on in NZ? I would say any decrease - substantial decrease - in immigration rates will flow through to lower housing prices very quickly, then after that will come an economic slow-down as consumption drops. If we are hit by a world-wide recession as well we could be in more trouble than soaring diary prices can solve. My concern is that these financial aspects will have repercussions at the social level. We are in uncharted territory here. Having had contact with many different walks of life while imprisoned I was struck by the virrulent racism of many provincial people and that affect could come through into the cities if the situation became acute.

The worst is not behind us: Beware of those who say we've hit the bottom

by Nouriel Roubini from Forbes.com 13 November 2008 It is useful, at this juncture, to stand back and survey the economic landscape – both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets: - The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades. - The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession. - Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging. - The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth – at market prices – to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009. - The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009. - Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs. - Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand – and given a very severe credit crunch. - For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls – as is most likely – to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels). - If the P/E falls to 10 – as is possible in a severe recession – the S&P could be down to 600, or 35% below current levels. - And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%). - Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news. - Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions. - Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion. - Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies. - Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises. - In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads – especially for the speculative grade – may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings. Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets. So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads). Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action. In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis – as I have consistently predicted over the last year – became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone. A reality check is needed to assess risks – and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets. I'll stop now. Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.