Who’s going bankrupt next?

September 22nd, 2008

After failing to find a buyer this weekend, Lehman Brothers filed for the largest bankruptcy in U.S. history. Meanwhile, another investment firm, Merrill Lynch, agreed to be acquired by the Bank of America for $50 billion. Another collapse came from the insurance giant AIG, which needed immense sums of cash to save itself from bankruptcy. Despite the U.S. government plan to fund financial companies with up to 800 billion dollars, it seems that the story is not over yet and that another merger is on the horizon, as both Wachovia Bank and Morgan Stanley (MS) need urgent funding support.

Could these occurrences have been predicted in advance? Definitely. One person that wasn’t caught unprepared is Nouriel Roubini of NYU’s Stern School, whose alarming predictions about the housing market and financial system have been heard in the past.

Currently, Roubini forecasts another 20% drop in stock prices, and reiterated a prior view that there will be no major independent broker/dealers standing before this crisis ends. In other words, investment companies such as Goldman Sachs and Morgan Stanley should be seeking emergency funding today, or face a similar fate as Lehman later.

I’m more optimistic than Mr. Roubini, but his words must be taken into consideration.

Last 5 posts by Yinon Arieli

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Tags: AIG, Merrill Lynch, Morgan Stanley

Entry Filed under: Stock Investing Ideas