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Alarmists sounding more like realists

A sign in New York’s financial district says what many are wondering during these turbulent times on Wall Street.

New York Times

A sign in New York’s financial district says what many are wondering during these turbulent times on Wall Street.

Look at the photo below of the man in New York's financial district. He's reading the end-is-nigh message written on a sign that appeared last Monday, the same day Wall Street's Lehman Bros. declared Chapter 11 bankruptcy and the stock market dropped 504 points.

As a 30-year observer of our U.S. financial roller coaster, I can point to no more wrenching week for investors, Wall Street and the credibility of the American capitalist system than the one we all just endured.

The good news is the Dow opened last week at 11,422 and, over five traumatic days, closed Friday at 11,388. The bad news is, despite that weekly drop of 34 puny points, major companies fell, the government shuddered, U.S. taxpayers got burdened anew and a clarion call sounded for financial overhaul.

It was, to quote TV junkman Fred Sanford as he clutches his chest, "The Big One!"

And it's hard to find a modern parallel.

Chrysler's federal bailout in 1981? Nope. Chicago's Continental Illinois bank bailout by the government in 1984? No way. Savings and loan bailout, costing the feds close to $500-billion? A big deal but it dragged on from 1986 to 1995. Black Monday stock market crash, down 22.6 percent in 1987? Nasty, but quick recovery.

Maybe the overleveraged hedge fund Long Term Capital Management in 1998? Not a chance. Emergency $15-billion aid for airlines in 2001? Chump change. Countrywide Financial bailout by Bank of America in 2007? No. Fed sale of Bear Stearns to JPMorgan Chase? Just a warmup act.

Yes, the winner of the "Most Likely to Conjure the Great Depression" goes to the bailouts of Fannie-Freddie-AIG, the Lehman bankruptcy, the "please buy us" request by Merrill Lynch to Bank of America, the flooding of cash into the markets by the Federal Reserve, the SEC crackdown (for now) of short selling, and the Treasury's long-term rescue plan heading to Congress.

All of this transpired in a matter of weeks.

We're in a period so unsettling that even the rising tide of modern-day Cassandras (those blessed with prophecy but cursed so no one believes their predictions) is starting to sound downright moderate and, at times, far more honest than the mainstream financial community.

Let's meet some of them.

For years, Florida's Martin Weiss, Ph.D., of Jupiter ran a mild-mannered research group churning out reports on the health of insurance companies and banks. Now he and others on his staff are digital fire-and-brimstone commentators warning anyone who will listen that the stock market is one of the last places anybody should be putting their money.

The Weiss team issued a video with the panic-inducing title Plague to Pandemic over the Internet on Monday amid Lehman's Chapter 11 and a plummeting stock market. It warns that the plague already hurting the banking system will spread and damage a wider array of well-known corporations, from Tiffany to Google to IBM.

Some of the team's other recent Web reports carry titles like Latest FDIC Report Reads Like a Horror Novel and The Ultimate Wall Street Nightmare.

"A domino of failures is looming," Weiss says on the video. "If you have these stocks, get rid of them."

Not exactly your father's analyst report. But the skinny on Weiss and his team is that, lately at least, they have been surprisingly on the mark in identifying weak financial institutions.

Another financial observer of such pessimistic, bearlike qualities that he's dubbed "Dr. Doom" is New York University economics professor Nouriel Roubini. He's the guy already with the reputation of calling — in 2006 — today's financial car wreck, from the housing bust and oil shock to crippled investment banks and a diminished Fannie Mae and Freddie Mac. In an August New York Times magazine profile, he predicts a $1-trillion cost for the housing crisis, the end of a third of the nation's regional banks and foreign indebtedness so high it "might be the beginning of the end of the American empire."

In his own blog last week, Roubini warned the "perfect financial storm of the century" cannot be contained. "The only light at the end of the tunnel is the one of the coming financial and economic train wreck," he said.

Last and probably least, we come to Palm Beach-based leveraged buyout billionaire Wilbur Ross, who, in a CNBC interview, said he expects as many as 1,000 U.S. bank closures, mostly small and regional-sized banks, in the coming months. Ross wants to invest in some with federal aid.

In more conventional times, doomsayers Weiss, Roubini and Ross would rarely see the light of day in a column like this one. But we are in more perilous waters and their pessimistic assessments, while unpleasant, may in fact be more realistic than we know. They deserve a public airing. And close watching.

Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405. Read his new Venture blog about Tampa Bay businesses at blogs.tampabay.com/venture.

Alarmists sounding more like realists 09/22/08 [Last modified: Monday, September 22, 2008 6:52am]
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