I pay attention to people who have a track record of accurate predictions. Michael Panzner, author of Financial Amegeddon and When Giant Fall, has been correct in predicting most of the causes and effects of the financial crisis.
The excerpt below illustrates his foresight – it was written in 2005.
Link: THE COMING DISASTER IN THE DERIVATIVES MARKET, by Michael J. Panzner, November 9, 2005
We weathered earlier storms in our financial system, too, though no doubt the cost has often been considerable. The risk this time, however, is that conditions are, and will be, more complicated and dangerous than before. While New Orleans was a relatively self-contained locale, whose citizens and government officials could potentially reach outside the area for assistance, a firestorm set in motion by a derivatives debacle is unlikely to leave many parts of the global financial system unscathed.
It doesn’t help that there are unsustainable imbalances in the global economy, either. America faces record trade and budget deficits. Many economically advanced countries around the world have aging populations and underfunded pension systems. Real estate seems to have taken the bubble baton from the stock market, though there are signs that the top is already in. And the world is awash in debt and a vast sea of open-ended obligations and contingent liabilities.
Moreover, if history is any guide, the period of monetary tightening that began in June 2004 will likely blow the cover off at least some shaky operations that had been kept alive by cheap money in the wake of the post-1990s new-era collapse. Odds are, in fact, that one of those will be the match that lights the fuse that ultimately triggers widespread financial turmoil.
Already there are rumbling in the financial world, akin to the small tremors that shake the ground ahead of a massive earthquake. In the spring of 2005, several large hedge funds reportedly lost billions of dollars on complicated credit bets gone wrong. One firm even admitted that it had made a substantial “miscalculation” — which they only realized, of course, after the fact. Given the increasingly complex nature of the derivatives market, that refrain is likely to be heard over and over again in future.
Certainly, the U.S. and global economies have been remarkably resilient, especially in recent years, and it may be a mistake to bet on the downside. What’s more, there are those who would argue that the financial markets have attracted the best and the brightest, and a gut-wrenching, blood-letting debacle is in no one’s interest. Unfortunately, the odds seem stacked against a happy ending, and the cyclical nature of financial crises suggests it is definitely the wrong time to be thinking like a Pollyanna.
Unfortunately, the reality is, if it all goes horribly wrong, it will not only be Wall Street that suffers. Main Street will, too. In the worst case, brokerage firms and banks will shut their doors. Markets will plunge and many investors will lose everything, Interest rates will shoot sharply higher, taxes will rise, and parts of the economy will grind to a halt, at least temporarily. Those seeking a mortgage, a college education, a job, or even day-to-day sustenance may find themselves left wanting.
At a time when many have abandoned prudence in search of profits, and where those who are knowledgeable about the disaster-to-come in the derivatives market are seeking to protect themselves, it is the timeless wisdom that remains true: forewarned is forearmed.