Banks Under Attack Again, But the Blame Is Not Theirs Alone

The way stocks in the banking sector have performed in the past two weeks reminds me of certain days in September 2008. Recent data indicates that short interest and shares short are increasing significantly for almost all of the banks, including Wells Fargo (WFC), JP Morgan Chase (JPM), Goldman Sachs (GS), Morgan Stanley (MS), Citigroup (C), Bank of America (BAC) etc. In such an environment of fear, panic, and economic disparity, the number of buyers outpace the number of short-sellers, making things even worse. I don't have sympathy for the banks, but if this continues for another two or three weeks, the whole financial system could come to its knees. Equity is a portion of the banks' balance sheets and if that gets reduced or wiped out, banks have to generate more capital to stay afloat. If short selling continues at its current pace, it is almost likely that all financial institutions could be nationalized very soon.

Sure banks played their own part in taking risk and excessive leverage, but the root of the problem originates from the incompetent consumer. Why would a strawberry picker earning less than $35,000 a year take two mortgages worth over a million dollars when he can't pay his rent? Why would an average citizen keep piling debt on his credit card, assuming that he/she would never have to pay? Why would companies continue piling on long term debt when they were barely able to generate enough cash flow to pay interest, but continue to pay dividends to shareholders? Where were the economists, regulators and credit agencies when things were getting worse and worse but the wild debt exuberance continued? The steps being taken today should have been taken at least two or three years back.

It is very easy to point fingers at management of banks today, especially when you are in front of the media, but there is no doubt that every citizen, from politicians, regulators, media and the general public played their part in this financial collapse and should be responsible for it.

Disclosure: No position in any financial stocks.

Comments

[ironpants:]

GDS's being manipulated and confidence in financials being undermined by hedgefunds in collusion.
Perhaps the new SEC will have some guts and rectify this.

Jan 20 07:11 AM

[ironpants:]

CDS, rather.

Jan 20 07:11 AM

[Tradememe:]

When banks start to point fingers at their own clients calling them incompetent consumers, you know the end is near.

Jan 20 07:41 AM

[prairiedog555:]

If you are a banker you are supposed to be smart, right?
And if you lend money to someone who cannot pay back that is not very smart, right? Actually negligent.
So I think that bankers who take investors money and lend to people who cannot pay back that money are criminally negligent. And should suffer either personal fines or incarceration.
Why is there not an outcry for this. These people should suffer. I guess it is because the watchdogs that are supposed to be on our side, Dodd and Frank, are sleeping with the enemy.

Jan 20 08:05 AM

[GregO:]

I had no control over Bank of America giving my xwife a mortgage that she couldn't afford let alone even coming close to qualification for such a mortgage. Every mortgage that I applied for looked at income to debt ratio always. BOA (snakes) gave her a mortgage knowing she was already responsible for one, they destroyed my credit and hers, and while she may have asked, I did not. So I encourage every American to let them fall. They also were fed a bad mortgage in Merrill Lynch, and who's fault was that, yet tax dollars bailed them out. Get your facts straight author, or find another occupation, perhaps in the banking sector, since you're such a know it all.

Jan 20 08:19 AM

[Billki:]

I'm 64 years old and can use the income of the Preferred securities of Bank of America, Barclay Bank, Deutsche Bank, Keycorp and Morgan Stanley,There all Preferred securities paying about 8.25%.
Worried about the govenment taking them over and leaving me with nothing. Ore there just going to to the way of Bear Stearns.I guess I'm not the only one thinking about this in these times.

Jan 20 09:17 AM

[pungent:]

> there is no doubt that every citizen, from politicians,
> regulators, media and the general public played their
> part in this financial collapse and should be responsible
> for it"

Really?!! Please explain how those of us who have been living debt-free or with very low debt are responsible for this and why we should pay for the highly-predictable, widespread destruction of idiotic entitlement programs like the CRA?

Seriously, Abdul -- explain.

Jan 20 11:29 AM

[James Wilson:]

The banks KNEW how the subprimes were being written and the also KNEW that these subprimes being purchased in bundles.

Then banks KNEW how the system worked and even SPITZER tried to warn the American People that THE BUSH ADMINSTRATION was PREVENTING the states from enforcing consumer protection laws.

THE BUSH ADMINSTRATION AND THE ATTORNEY GENERAL ALLOWED the NINJA LOANS even though the NINJA LOANS WERE IN DIRECT VIOLATION OF THE RICO ACT !!!!!!!!!!

The banks had no choice but to either shut down or work within the current economic enviorment pressed by the BUSH ADMINSTRATION !!!

You should be asking yourself why BAC and others wait till after posting huge losses before cutting jobs.

At least CITI bank knows what it is doing and cutting where it can fast and rebuilding the bank it once was before these would be finanical kings too it over.

Jan 20 01:30 PM

[Philly Jim:]

Bush Bash I : Savings & Loan Scam
Bush Bash II: Mega Global Finance Scam

Party favors are suitcases with $10 million inside. It's gonna be a long eight years fellas, steal it while ya can! Yeehaww, Texas style.

Jan 20 11:26 PM

[Swift:]

All watch this film and you will understand how economics are simply controlled by no more than ten or eleven powerful american bankers -
Chase, Morgan, Rockafella, Rothschilds even the Bush family. They waltz inbetween the doors of the senate and industry at the top level and have the ability to scare monger and create panic amongst the masses with their hands in the media.

There is an economic downturn - but as long as you have a heart beat forget blame. The power of these names will decide the course of the economy and no one else.
If you don't believe watch the history lesson that explains their methods (scare mongering, wall st crash) and tools (media, CIA economic hitmen and jackals).

The sooner everyone wakes up to their ways the sooner we can rectify the problem from it's root.

www.zeitgeistmovie.com/

addendum will explain money to you like no education everdid. Because even that system has been tarnished by the power hungry fat cats of the banking world.


On Jan 20 07:11 AM ironpants wrote:

> GDS's being manipulated and confidence in financials being undermined
> by hedgefunds in collusion.
> Perhaps the new SEC will have some guts and rectify this.

Feb 22 07:58 AM