Bad Banks?

Special Report from The Daily Reckoning:

Do You Own Stock in Any of These Banks?

And what to do if the answer is YES…

The Crisis

It all started as Wall Street crumbled around him, former Treasury Secretary Hank Paulson claimed a $700 billion bailout was necessary to prevent financial meltdown.

When that didn't work — the Dow and S&P were each down over 18% just a week after the bailout emerged from Congress — Paulson suggested the federal government step in and prop up the banks.

Since it all began, the Feds have been pumping out billions in phantom money to shore up banks across the country. There seems to be no limit to the amount of money the government is willing print up and dump into this crisis. If this seems reasonable to you, you probably work in Washington, D.C.

The "Solution"

But will this drastic "solution" make the banks solvent again and avert a total meltdown? It's doubtful. Problems and pitfalls lurk everywhere.

Right now the banks are simply hoarding the injections of cash, in a desperate attempt to maintain liquidity. The banks are terrified of becoming insolvent.

Worst still, a wide-array of extreme oversight and regulation is right now in the works. How strong the restrictions will become is yet to be determined. The only thing that seems cut and dry is where the final accountability will rest. The answer? With taxpayers like you! Are you willing to help foot the bill?

As new details come to light each day, it becomes increasingly clear that we're staring at the very real possibility of a depression in this century. If you expected good news from the bailouts by now you should be thoroughly disappointed.

The Depression

Home sales are poised to continue plummeting, even as prices fall around the country. The U.S. unemployment rate at 8.1 percent in February is already the highest in more than 25 years.

The Dow could easily shed another 30% from its current level, as investors ditch any further effort to beat inflation and flee to the comfort of cash under the mattress.

Your first step in preparation of this potentially dire situation is to analyze what you own and why you own it.

For example, if you hold stock in any of the following five banks, you may want to reconsider your exposure. There may be another very big leg down in this continuing financial fallout. This year is shaping up to be bumpy and to require some belt-tightening, so it pays to be prepared.

Citigroup (C:NYSE)

Billions of the government bailouts have been handed out with Citigroup's name on it. Bailout after bailout, three in total, and Citigroup is still at risk of returning to a $1 stock.

The share price currently has been cut down to a tenth of its 52-week high, and much less at times. If you can believe it, since the February 27 round of government life support, taxpayers already own about 36 percent of Citigroup's common shares. That's not saying much — it may become much worse.

J.P. Morgan Chase (JPM:NYSE)

J.P. Morgan Chase has taken $25 billion from the government's Troubled Assets Relief Program (TARP) assistance — this when over 50 million Americans own JPM shares, many through 401ks and other retirement accounts.

So, is J.P. Morgan solvent? Some estimates indicate it might have potential current derivatives losses of over $240 billion, which would far exceed its $144 billion in reserves. Could it get better? The potential future exposure looks even worse, with staggering exposure of up to $300 billion.

The Rest of the Fallout:

Goldman Sachs (GS: NYSE)

Morgan Stanley (MS: NYSE)

Bank of America (BAC:NYSE)

Goldman Sachs, Morgan Stanley, and Bank of America each also require a hard look if any one of those banks is a part of your portfolio. Although they have sometimes claimed to not need them, Goldman Sachs and Morgan Stanley are eating up bailout dollars without remorse — and both sit on billions of dollars in rotten debt.

Bank of America, after taking over collapsed firms such as Countrywide Financial and Merrill Lynch, also deserves a much closer look. The investigations into exactly how much worthless paper it holds (and who's on the hook for it) are just getting started…

It doesn't look good so far! Bank of America has over $80 billion in potential current derivatives exposure. That's below its $122 billion reserve, but it's really its total exposure is the terrifying part… greater than $200 billion!

If you own any of these stocks, you need to do some hard thinking. Do you own these banks for what they are right now — risky stocks with dubious assets and significant bad debt? Or, do you continue to hold them based on what they were once, and will likely never be again — the titans of Wall Street?

Likewise, if you own Wells Fargo (WFC:NYSE) — which recently stepped in and gobbled up struggling bank Wachovia— you owe it to yourself to pay close attention to just how bad the situation at the combined banks has really had become, It has combined reserves of over $100 billion, but its total future risks also exceed $100 billion.

The big story here is simply this: If you own banking stocks right now, you need to seriously reevaluate why you own them. Do you honestly think the fate of each may improve in the long haul? Perhaps now is the time to sell and move on? An obvious first step is to speak with your investment professional in order to begin weighing your options.

How We Can Help

The Daily Reckoning has been following the entire mess very closely, and we've been warning about the impending banking meltdown for years — long before the mainstream financial press woke up to the trouble.

Not only can you avoid the worst of the fallout starting right now, but you can also begin to gain consistent and relatively effortless profits, too. We know a simple, yet lucrative way for you to pad your portfolio against what is bound to be a trying time for our economy now and for some time into the horizon.

To uncover this great nonbanking portfolio — which actually pays you to own it — check out this extra exclusive report reserved only for Daily Reckoning readers like you.

Introducing the Single Best Way to Make Sure You'll Never Run Out of Money…

The Endless "PAYCHECK PORTFOLIO"In three simple steps, unleash a steady flow of work-free income… starting with up to 75 automatic "paychecks" deposited directly into your account. Act now or risk missing the next "payday". To access your report please CLICK HERE.

Copyright © 2009
Agora Financial, LLC and Daily Reckoning,
808 St. Paul St., Baltimore, MD 21201
All rights reserved. Information contained herein is obtained from
sources believed to be reliable, but its accuracy cannot be guaranteed.