Will Lehman or WaMu Default?

If there is going to be a big financial-sector default, who would it be? Justin Fox answers the question:

The one everyone has been talking about is Washington Mutual, which is down another 25% so far this morning (Lehman stock is up slightly after its earnings report and conference call).

I think Justin’s right, and that we could be headed towards the first big default of the credit crunch. But I don’t think that looking at intraday stock moves is particularly helpful. Both these companies have seen their shares go to zero already: they’re trading at option value only. And once a company is at zero, percentage gains or losses cease to have much if any meaning. The fact that the shares are at zero makes the companies more likely to default. After that, moves in the share price have very little meaning.

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