Someone Predicted this Credit Mess Five Years Ago

Normally, I think of The Motley Fool as one of the most worthless financial sites around, spouting off attention-grabbing, sensationalist headlines just to pull readers into their abyss of mediocre financial articles. Here is a sampling of some typical headlines that have popped up over the past few weeks:

You get the picture.

However, today, a Motley columnist pointed to what may be the most prescient piece of content ever to appear on the site. Fittingly, it came from a reader on a discussion board and not an actual Motley Fool employee.

Here is the discussion board post. It’s quite amazing. It’s essentially a dead-on calling of the collapse of the bond insurance industry almost exactly five years before it happened. (For those who aren’t following, the bond insurance industry — specifically MBIA and a few other companies — has crumbled over the last few months and is threatening to take other pillars of the economy down with it… mostly because of bad subprime debt).

To have called almost this exact scenario five years before it happened is pretty amazing. I’m sure this person wasn’t the only one waving a warning flag, but it’s an incredibly interesting read.

In looking at the S&P chart below over the last five years, however, it’s clear that as bad as this development is, and as accurate as the prediction was, pulling out of the U.S. economy — at least so far — would have been a bad idea. “So far” being the operative qualifier there. :|

UPDATE: On a related note, this animated primer of the subprime mess is hilarious.

13 comments on “Someone Predicted this Credit Mess Five Years Ago”. Leave your own?
  1. Ryan Holiday says:

    But what of every other prediction made on that day that ended up being horribly or laughably wrong?

  2. I’m with Ryan on this one– it’s pretty easy to retrospectively decide which of your predictions you really meant.

  3. Rene says:

    I think this comedy bit illustrates well why the financial sector gets themselves in this mess:

  4. Jemaleddin says:

    Monkeys, check. Typewriters, check. Giant archive to look back through their findings for wheat amongst the chaff? CHECK!

    And that’s what the internet is for: saying I told you so. I’m going to set up two blogs where I post opposite predictions and then claim credit when one of them turns out to be true. :-)

  5. Brett says:

    Mike, I think you’re being a little too hard on the Fool.

    Yes, the Gardners and their crew occasionally make stock picking appear easier than it really is. But they were among the first and loudest to really hammer managed mutual funds (especially funds that carry loads and high fees) and on occasion they’ve published some excellent articles by truly talented writer/investors like Whitney Tilson (for example, check out his series on JetBlue).

    It would be better if investors stuck to Buffett, Bernstein, Malkiel, and Tobias, but that’s not going to happen. People are going to look for commentaries and communities. With the notable exception of the Diehards, the Fool’s probably a better place for it than any other.

    Sure, they like to have fun. But they’ve earned their spot on NPR by giving out advice that, on the whole, helps more people than it hurts. Which is more than I can say for just about anyone else with a significant web presence.

  6. Mike D. says:

    The thing about this prediction, though, was that it was not “the market will go up” or “the market will go down”. It was a *very specific* outline of *exactly* why the bond insurance industry was about to be in big trouble. When read five years later, it doesn’t read as a seat-of-the-pants random thought that may or may not end up being correct. It’s a calling out of what many people in the finance industry (and the government) were turning a blind eye to at the time.

  7. Mike D. says:

    Brett: True, I am a little harsh on the Fool, but I just feel like these aren’t exactly the glory days over there. I agree they have done lots of pioneering stuff in the past, bringing financial content to the masses, but I just feel like things have deteriorated greatly in the last few years. That said, however, “you don’t sell the steak, you sell the sizzle”, and they are good sizzle sellers. :)

  8. I suppose if you guess enough … you are eventually right on. Isn’t that the scam, spread your predictions really thin and take advantage of the few direct hits and pretend the misses never existed?

    Not saying that is what The Motley Fool does … but people that have headlines like you mentioned traditionally work that way.

  9. Josh Ames says:

    Many people looking at this situation from outside the industry could easily see the credit disaster looming, even five years ago. It is a sad testament for the financial industry that they were too delusional to see this coming. Motley Fool only forecasted what everyone else should have seen too.

  10. chris sivori says:

    I too have been getting annoyed with their headlines, especially since I somehow ended up on their mailing list. Hyperbole should be used sparingly. Not EVERY time you push out an article.

  11. William Bay says:

    Mike and Brett,
    Great points on the Fool! I have read a number of their original books a few years back and have noticed the divergence of thought from then to now.
    I think it’s one of those situations where you pass the level of control down to other hands and their fundamental message gets dilute and more susceptible to current thinking or methods for promotion and exposure.
    A little sad to see it get so commercial but I still spend some time there trying to educate myself.

  12. Chris laskey says:

    Thanks for the “animated primer of the subprime mess”. It really was hilarious. It was the first time I had a good laugh about the financial mess my portfolio and the rest of America is in.


  13. Angelique says:

    That message on the boards was written by the Co-Founder. TMFDavidG is David Gardner.

Leave a Reply

Your email address will not be published. Required fields are marked *

Subscribe by Email

... or use RSS