Predictions of bank failures from 2008

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Editor’s Comment:  

Some people have challenged our assertion that our predictions have been right on the money. The excerpted part of the first Workbook published was presented the first week of September 2008 after completing our analysis in August 2008.

The capital of the bank is its net worth. All regulations regarding banks watch the capital of banks carefully so that they are lending to a point where they are endangering their ability to honor the deposits or investments made by consumers and businesses. Here is how Wall Street “fell” and how we predicted it accurately.

There are three types of capital.

Level one is what the asset is obviously worth on the open market by looking at a publicly known and trusted exchange like the New York Stock exchange etc. Level two are assets that are combinations of level one assets. So if you had a soup can as an asset, you would be able to tell what it was worth by looking at the commodity markets to determine the value of carrots, celery etc. Level 3 assets cannot be valued by independent means. They are assets that re valued by management in any way they deem fit. They normally are extremely low in financial institutions because financial institutions don’t typically buy or create or acquire assets that have no independently verified value. They stick with known values that can be verified. That is what was so different starting in the 1990’s.

This says it all I think. Brad and I poured over the financial statements of the largest financial institutions and found to our shock and horror and level 3 or tier 3 assets were at levels unheard of in the history of banking. Usually hovering around 5%-15% of capital (at which point they were considered risky), we found dozens above 15% and this list that shows that level 3 assets were MORE than all (100%) of the capital the bank or financial institution claimed to have. The entire financial world had been turned upside down. Some other people were writing books about the impending collapse of the stock markets etc., but they were largely ignored.

On the day that Brad and I gave our first seminar In Santa Monica the largest mortgage lender on the West Coast, IndyMac was taken over by the FDIC. We decided to publish our findings that day predicting that it was not just the lending companies that were fronting for Wall Street that would fall. It was Wall Street itself.

Brad made a list of the worst offenders to the institution that had more level 3 assets than all their capital combined (100%), which means that they were doomed to imminent failure. Here is the slide in which he showed his analysis. Since we were concerned with the fate of homeowners and not investors in the markets, we did not elaborate other than to say that these banks would fail within 6 months. We were wrong. They all failed within 6 weeks of publication of our predictions. The slide and related slides were left out of revisions tot he Workbook #1 because it was an event that had already happened and we were, again, concerned with what we could do to help homeowners in distress, not banks in distress.

Predictions of Bank Failures 2008

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