Edward Harrison

WaMu on the Brink

Edward Harrison here again.

One other comment. The financial services sector is in dire straits regardless of Fannie and Freddie's bailouts. In the US, institutions across the board invested excessively in residential property which was selling at inflated prices. We are now witnessing the consequences of that.

The result has been $500 billion in writedowns to date, hence the name of my site.

www.creditwritedowns.c...

The question is whether these writedowns will continue for the foreseeable future or whether we have hit bottom. I would argue that we have many more writedowns to come due to two factors at a minimum:

1. We are now witnessing a large increase in delinquencies and foreclosures in Alt-A and Prime mortgage classes. These delinquencies and foreclosures are the events that triggered writedowns in subprime.

2. We have yet to feel significant headwinds from the real economy downturn, which will have a knock-on effect on the housing sector as well.

Now, I don't have a crystal ball, so I could be wrong -- in fact, I'd like to be. And there are plenty of smart people who argue the other side. But, the fact remains that the financial services sector is fragile and companies like WaMu, Lehman, NCC, Zions, Fifth Third and others that have suffered the most, are also the companies with the weakest balance sheets and the most problem loans.

My condolences to anyone holding these stocks. I have a close family member who is heavily invested in Fifth Third, so I understand the pain being inflicted.

Edward