09.15.08
Let’s Hear it for Financial Armageddon
Some people thought I was crazy with my prediction back at the beginning of this year that we would see a crisis that would look like financial armageddon. But if you take a look at that article, my predictions (while not great) do capture the essence of what has happened. While I was wrong in predicting the demise of all the bond insurers and not the broker/dealers, I did make a couple good predictions:
June: Several regional banks based in California are paralyzed by bank runs. They declare bankruptcy. The FDIC estimates that the bailout of their depositors will cost $30 billion.
…
September: A large insurer reveals write downs due to mortgage-backed security losses equal to its book value. Its stock drops 90% in one day, leading the S&P 500 down 8%.
It is pretty eerie that my prediction of an insurer’s troubles corresponds closely to what has happened to AIG (AIG: $1.74 0.00%, market cap: $4.680B). These are scary times, but the worst is not over. Expect more bank troubles, including the failure of Wamu (WM: $0.1604 0.00%, market cap: $N/A) and maybe National City (NCC: $0.00 N/A, market cap: $N/A).
Bert & Ernie sing “Ante Up” by M.O.P.
Disclosure: I have no position in any company mentioned. I do have a friend who works at AIG. I have bank accounts and a mortgage at National City.