American banks were at the heart of causing the worst financial crisis that brought down the entire world economy because of reckless subprime mortgage over-lending. Everyone on earth knows that.
Banks, however, were not the sole “criminal” for this disaster that has ruined so many lives. The entire home purchase-lending chain, including politicians, law makers, regulators, banks, investors, realtors, housing industries, and the home buyers, etc., shall all bear the blames, if not equally. Most people on earth should also know that.
In the hi-days of real estate boom, greedy investors made huge money by selling mortgage backed securities. Big banks grew bigger through no restricted lending. Politicians and government regulators played more golf with more lobby sponsoring. More people flocked to be the realtors to raise the employment. And the poor buyers got their dream houses that they could never afford with their regular incomes. The entire US economy was high flying and everyone was happy!
The burst of subprime mortgage triggered the deep financial crisis and plunged the US economy. The banks were hardest hit financially since they are the ones that ultimately hold the bad loans. Lehman Brothers, Washington Mutual went to the unthinkable bankruptcy. For many others, merger and government bailouts were the only options to survive. Billions and billions of money vaporized for banks and investors.
Banks and Investors Lost Billions in the Worst Financial Crisis
Bank | Peak Price before Crisis | Bottom Price in Crisis | Market Valuation Loss, $ b |
Citibank | 52.5 | 1.03 | 257 |
Bank of America | 51.2 | 3.14 | 213 |
JP Morgan | 48.2 | 15.93 | 132 |
Wells Fargo | 39.8 | 8.61 | 119 |
Wa. Mutual | 45 | 0.16 | 39 |
Goldman Sachs | 235.92 | 53.31 | 83 |
Lehman Brothers | 74 | 0.1 | 43 |
Morgan Stanley | 88.48 | 9.68 | 83 |
However, banks were unfairly getting most of the blames, including all the guilty ones from the entire home purchase-lending chain. Home owners hated banks to take away their life worked dream. Realtors blamed banks for the jobs lost. Politicians attacked the banks to diffuse people’s anger.
Easy Blaming Cash from Bank’s ATM
Obama won the 08 Election by redirecting voter’s attention from Iraqi War to the poor US economy. The Obama supporters and Democrat party backers then helped to worsen the economy and to plunge the stock market, leading to a classic panic victory for Obama from a disaster. It was the financial crisis that helped Obama and Democrats to win the White House and both Houses.
Once in power, Obama and the Democrats continuously withdraw the easy blaming cashes from bank’s ATM. Obama constantly condemned banks in order to maintain his popularity among anger-growing voters. The Democrats in House and Senate pressed vigorously to pass the notorious financial bill that will severally limit the banking business and weaken their overall financial strength through big government regulations. If that is not enough, Obama dictated Elizabeth Warren, who hates banks in all her life, to lead the new consumer protection agency created from the financial bill.
Moreover, the US Treasure has kept a significant holding in Citibank’s common shares and has been selling these shares in the open market very slowly for a long period of time. By doing this, the Obama administration can firmly control the depression of banks and financials, making the bank hatred into real bleeding.
These depressive actions from politicians and regulators have attracted big hedge funds to short the bank stocks repeatedly. In most cases, one has to suspect that the Democrats and Obama government officials must have worked together with the hedge funds to collaborate the shorting sales. Whenever there was encouraging development from the banking industry, the Obama government and Democrat congresses would find or create something bad for them, bonus “scandal”, Goldman Sachs subpoena, financial regulation legislation, and the most recent foreclosure paperwork flaws, just name a few. Almost every bad exposure has been perfectly timed to bring down the banks and financials. It is no surprise to dig down and find out some close connections between the Democrats and the big hedge funds, and their giant financial gains from deliberately depressing banks.
Poor miserable banks, they lost billions of money, went bankruptcy, surrounding by the harsh blames and depressions, but they dare not to blame anyone else.
Over the two years after the worst of financial crisis, the banks again and again were the easy targets for blames and punishments. They all have to operate nervously under intensive stresses in order to survive. When the banks are nervous and depressed, the entire US economies are nervous and depressed. No wonder there is no quick recovery for the US economy. No wonder the home owners still cannot find jobs. No wonder, at the dawn of mid-term election, voters are very unhappy.
Desperate Wishful Thinking
The conservative Republicans running for elections have no guts to stand on truth for the banks. Instead, they joined the crowds and also blamed the banking bailouts; just trying to redirect voter’s anger. They might have been in a less extent to exploit the benefits of blaming banks, but surely they are at no position to protect banks and financials, which have been at the heart of economic growth for US and the world.
Ironically, banks and financial industries are also no hurry to turn around their miserable situations right now. They have been depressed so hard for so long that finally they may have their chance of revenge. They certainly hope that a great number of Democrats will be defeated in this mid-term election in both House and Senate, changing the dominating political discrimination against banks and financials. Banks are no hurry to accelerate lending to fuel the US economy quick expansion. They are no hurry to push the banking stocks higher. Nevertheless, the depressed stock prices are such a rare opportunity for the bank executives and employees to get large and cheap stock options. The banking and financial industry as a whole want to prolong the continuous bad condition to fuel voter’s anger.
Making Money Quietly
In reality, how are banks doing these days? Actually, they are doing surprisingly well, but they have been trying very hard to keep this quiet. Banks issued new stock offerings to repay the government bailout TARP and to enhance their cash reserves. They have quietly restructured and written off the bad loans and bad assets. In the current dollar devaluation chaos time, banks are holding a lot of real estate assets. They have expanded aggressively in the emerging markets. Banks have been making money quarter after quarter, but in the same time, they are also lowering everyone’s expectations using various excuses created by the depressing actions imposed by the politicians and government regulators.
As a result, banks are deeply undervalued now than ever. Bank’s PE/PS ratios have reached historic lows. Bank’s current stock prices are way below their 1-year targets.
Undervalued Banks and Financials
Bank | Current Price | PE | PS | I Yr Range | 1 Yr Target | |
Citibank | C | 3.95 | NA | 2.42 | 3.11-5.07 | 5.29 |
Bank of America | BAC | 11.98 | NA | 1.74 | 11.74-19.86 | 19.47 |
JP Morgan | JPM | 37.15 | 10.95 | 1.74 | 35.16-48.20 | 52.13 |
Wells Fargo | WFC | 23.58 | 14.23 | 1.46 | 23.02-34.25 | 36.18 |
Goldman Sachs | GS | 150.69 | 7.6 | 1.67 | 129.50-187.65 | 187.71 |
Morgan Stanly | MS | 25.02 | 8.4 | 1.11 | 22.4-35.78 | 32.36 |
Once the mid-term election is over and the dust is settled down, more Democrats will be voted out of the congresses. The politics in Washington DC will tilt toward favoring business and economy. Obama government will have no choice but be friendlier to the banking and financial industries. Treasure’s Citibank share holdings will be sold directly to major investors and sovereign funds immediately. Company CEOs will be recruited to key posts of Obama administration. The foreclosure paperwork flaws will be diminished, just like the magical disappearance of BP spilled oils in the Gulf of Mexico.
Oil spill, what oil spill? Anyone remember?
You will see skyrocketing of bank’s stock prices.
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