Unfortunately, the masters of the universe were wrong.  "The worst is behind us," said Richard Fuld, CEO of Lehman Brothers (nyse: LEH - news - people ), in April, the same month Lloyd Blankfein, CEO of Goldman Sachs (nyse: GS - news - people ), thought, "We're closer to the end than the beginning."  Fuld must wish that he could take his words back as he struggles to right Lehman and keep it independent. Lehman shares have fallen to nearly $20, far lower than they were in April, or at the last $6 billion recapitalization at $28 a share.  Worse off than Fuld is Ken Lewis, CEO of Bank of America (nyse: BAC - news - people ), who is foolishly planning to acquire Countrywide Financial (nyse: CFC - news - people ) on Monday, June 30, for $4 billion. It will cost Lewis perhaps half of the bank's $110 (remaining) market value if he goes through with this deal, according to one of Croesus' most valued informants during the subprime debacle. Bank of America is selling at half the price it was one year ago.  This source has not been wrong yet and claims he is short the major banks and will continue to bet that their shares are going down, in some cases another 50% or so. Do not pay attention at your own financial risk!  Countrywide is holding some $34 billion in worthless second mortgages and faces potential fines in the billions that will be owed to Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) if fraud is proved in its mortgage issuance, as is alleged in dozens of lawsuits.  Nouriel Roubini, the New York University economist who predicted the step-by-step meltdown in the financial system last February, warns that Lewis' wrong move will cost him his top position at Bank of America. Roubini also predicts that banks will continue to experience losses from the expected decline in the value of bonds backed by credit cards, auto loans, student loans, municipal bonds, commercial real estate and more than 400 failed regional banks.  Don't believe for a minute that the bank write-off crisis is over. Even accounting measures are going against the masters of the universe. In early 2009, banks must put back on their balance sheets the special-purpose vehicles and off-balance entities holding these types of consumer loans. This will upset their debt-to-capital ratios and may require more capital to be raised. Or calling in loans or otherwise curtailing lending elsewhere. Citigroup (nyse: C - news - people ) has just published a voluminous report predicting that JPMorgan Chase (nyse: JPM - news - people ) and Wachovia (nyse: WB - news - people ) will be two of the institutions most affected by this requirement.  Croesus has been counseled that Wells Fargo (nyse: WFC - news - people ) faces massive write-downs from $80 billion in home equity loans that will continue to force its share price down into the single digits. Likewise for Citigroup, which holds its own radioactive cache of troubled home equity loans. These loans keep losing value as home prices plummet nationwide.  Then there's Wachovia, holding a massive amount of so-called hybrid option mortgages. Should this huge pile of paper lose 10% of its value, Wachovia could see its entire market value of $35 billion or so be wiped out, suggests Croesus' confidential source.  Wishful thinkers will not subscribe to the above scenario. Pollyannaish pundits have been predicting the bottom in bank shares for months now. But Croesus was warned by a civilized historian of banking this week that the Swiss banks lost $60 billion 10 years ago by forcing the authorities to recapitalize them.  In some financial circles, there is the anxiety that in the worst-case scenario of a prolonged financial meltdown, the lenders of last resort--the globe's central banks--might not have the capital reserves, the political will or the ability to stem the private sector's losses and preserve the stability of the world financial system.  This stark outlook comes from a very sober financier indeed, and it was echoed in a recent report titled "Apocalypse in Motion," by Dr. Jim Walker of Asianomics Limited. "The Fed has been joined in its unprecedented efforts to maintain financial stability even at the potential expense of extreme moral hazard by the Bank of England and the European Central Bank, both of which have also provided liquidity against questionable securities," writes Walker. "The new era of asymmetric central banking--no recognition or effort to prevent bubbles on the way up but every effort to reflate them on the way down--is in full swing. It is an era that is bound to end badly."  So what should be done? Asianomics' macro-investment strategy for living through the crisis is partly as follows. Short 10-year U.S. Treasury notes because true inflation is now higher than authorities say it is; short emerging-market equities because recession is a risk to profits; short or underweight technology; and short the euro.  On the long side, you want to own high-yielding defensive blue chip stocks and gold, while also going long the Japanese yen against the Swiss franc. For playing the corporate-earnings disappointments to come, go long on volatility by buying calls on the CBOE Volatility Index. Later this summer, after the Olympics are over, you can start shorting the commodity producers.
Betting on a collapse in financials paid off well last year. Sadly, the same trade is still making money.