Signup for our free newsletter:

The Financial Market's Meltdown

Written By Brian Hicks

Posted September 18, 2008

I don’t know if you’ve noticed it, but Hank Paulson doesn’t look so good lately. Neither, for that matter, does Ben Bernanke. I guess saving the world from "systemic financial collapse" is more stressful than it looks.

Together they have been working overtime as they struggle to keep it all afloat. After all, what lies in the balance is only the fate of the world.

But despite practically rewriting all of the rules and pumping massive amounts of liquidity into the broken system, the crisis has quickly transitioned into its endgame.

It’s no longer about liquidity. Instead, it has devolved in a matter of solvency.

That’s a far different world from where we started with this mess and one that can’t be easily changed – no matter who is calling the shots.

So over the course of the last two weeks, "the system" has teetered on the edge of the abyss and the markets have fallen apart. Reality bites.

For the markets, that means that the game that has suddenly turned into the sum of all fears. And I can assure you that is no mere hyperbole. The work of Hank and Ben aside, the Wall Street meltdown is gathering steam.

The Financial Markets Lead the Meltdown

That’s the market reality that has turned this week into the worst one since 9/11, as fear takes it’s seat in nearly every trade.

Not surprisingly, it is being led by the financials that got us into this mess in the first place. The sector is absolutely crashing and taking everything else down with it. And I do mean crashing.

After all, how else can you possibly explain it?

Lehman Bros. is no more.

Freddie and Fannie are penny stocks.

And the U.S. taxpayer has become an 80% partner in a Dow component with an $85 billion loan to AIG to keep it afloat.

Meanwhile, more shoes are lining up to drop as the ripple effects of what happened earlier in the week stretch across the pond.

But the one thing we do know is this: massive losses have been taken by investors in the financials.

That pressures the system in ways that the dot com bust never could have dreamed of.

In fact, here’s a list of the losses in market capitalization for 25 of the biggest financials since their rough peaks in October 2007. Keep in mind that these companies are not exactly E-toys.

The losses include:

  • A I G -Then: $178.8 billion… Now: $5.46 billion. Down 96.95%
  • Bank of America -Then: $236.5 billion… Now: $123.4 billion. Down: 47.82%
  • Citigroup -Then: $236.7 billion… Now: $76.34 billion. Down 67.75%
  • Merrill Lynch – Then: $63.9 billion… Now: $30.2 billion. Down 52.74%
  • Fannie Mae – Then: $64.8 billion… Now: $0.45 billion. Down 99.3%
  • Morgan Stanley – Then: $73.1 billion… Now: $41.1 billion. Down 43.78%
  • Wachovia – Then: $98.3 billion… Now: $19.44 billion. Down 80.22%
  • JP Morgan Chase Then: $161 billion… Now: $130.2 billion. Down 19.13%
  • Capital One Financial – Then: $29.9 billion… Now: $16.9 billion. Down 43.48%
  • Washington Mutual – Then: $31.1 billion… Now: $3.64 billion. Down 88.3%
  • Lehman Bros. – Then: $34.4 billion… Now: $0.80 billion. Down 97.6%
  • Goldman Sachs – Then: 97.7 billion… Now: $40.6 billion. Down 58.7%
  • Wells Fargo – Then: $124.1 billion… Now: $111.25 billion. Down 10.35%
  • National City – Then: $16.4 billion… Now: $2.8 billion. Down 83%
  • Fifth Third Bancorp – Then: $18.8 billion… Now: $7.9 billion. Down 57.6%
  • American Express – Then: $74.8 billion… Now: $37.5 billion. Down 49.87%
  • Freddie Mac – Then: $41.5 billion… Now: $0.16 billion. Down 99.6%
  • Suntrust Banks – Then: $27 billion… Now: $16.07 billion. Down 58.7%
  • BB&T – Then: $23.2 billion… Now: $18.4 billion. Down 20.69%
  • Marshall & Ilsley – Then: $11.6 billion… Now: $4.48 billion. Down 61.3%
  • Keycorp – Then: $13.2 billion… Now: $5.68 billion. Down 56.97%
  • Legg Mason— Then: $11.4 billion…Now: $4.96 billion. Down 56.49%
  • Comerica— Then: $8.3 billion…Now: $4.74 billion. Down 42.89%
  • Countrywide Financial: Then: $11.1 billion…Now: $0.00 billion. Down 100%
  • Bear Stearns— Then: $14.8 billion…Now: $ 0.00 billion. Down 100%

Now that is quite a list. And I’ll save you the tedium of adding it all up.

Together these 25 companies alone have lost investors a total of $992,690,000,000 over the last 12 months… or nearly 1 trillion dollars.

And that’s just based on their share prices as of yesterday. Today it’s a bit worse.

As for the news itself, it has been coming in fast and furious ever since Sunday night. And there’s not much more I can add to it other than to say it’s as fly-by-the-seat-of-your-pants as it gets.

However, within them all there is a simple and common thread: The markets are coming unhinged.

Where she stops, nobody knows – least of all Ben Bernanke and Hank Paulson.

Let’s hope they get it right.

The good news is it can’t go on forever, and when it ends there will be plenty of bargains to be found. The bad news is we’re just not there yet.

Your bargain-hunting analyst,

steve sig

Steve Christ, Investment Director

The Wealth Advisory