A lot of famous market prognosticators only had one good call.
John Paulson and Peter Schiff with real estate, Roubini with the market’s continued crashing during 2008….the list goes on and on. Look at any time period. There is always a slew of analysts that were feverishly calling for some sort of crash — and they were right. The problem is they were only right once.
Thankfully the game hasn’t changed
The bankruptcy isn’t a game changer. In fact, it is the opposite. It is an encouraging sign that the plan is to actually use the well functioning legal processes that we have in place and that are backed by the US Constitution. What a novel idea, right? Of course, Meredith Whitney doesn’t get any press for saying this. It has to be sensational to get press.
Effects of bankruptcies overstated
Eugene Fama, who has been an advocate of using the basic bankruptcy system we have in place (and consequently doesn’t get much press), states that the costs of bankruptcies are almost always overstated. Remember Russia’s default in 1998? Do you think Russia was better off defaulting and moving on, or do you think they would have been better off trying to get into some complex situation of financial servitude like Greece is doing right now? Argentina also had a default in 2002. The point is that the world doesn’t end with a bankruptcy or default, and these events are usually a point where things start turning around.
Financial markets aren’t signalling panic
Just look at the bond and equity markets. Do they seem to be panicking because of Detroit’s bankruptcy? My prediction — in 10 years people will look back on this as the moment when Detroit finally started turning around for the better.