My 1st Million At 33 - yes, you can do it too

The way IndyMac bank and probably other banks going out of business is unthinkable just one year ago. IndyMac just cuts its staff in half. And it will continue to cut branches and staffs until all money runs out. The bank will simply disappear into nothingness, thanks to all the losses that it ran up in the housing bubble and lending insanity.

And I’m guessing that this will be true or has been true for Downey (DSL), Fremont (FMT), PMI Group (PMI), FirstFed (FED), General Motor (GM), Ambac (ABK), MBIA (MBI), and many others, and potentially for Washington Mutual (WM), FNM (Fannie Mae) and FRE (Freddie Mac) too. For the most part, the enterprise values for those companies are or will be zero, even before the housing market hits the bottom. For the other stronger companies, they will need a hell of some capital because once the housing market hits bottom, it won’t have any significant bounce for quite a long time. Translation: they will need to hold onto the losing mortgages on their book for quite a long time and continue to take losses.

It’s kind of sad and terrible for those workers at these failing banks, and the real estate owners who lease to the banks. Their workplace will be empty, and probably will stay empty. I seriously don’t know what other businesses will take their place, especially with Starbucks closing 600 stores, and many other retailers to follow, and/or fail. The losses from the housing bubble were just too big. And the banks only have themselves to be blamed. Why in the hell did they want to give (lend) out the money to the home-”renters” who can never pay it back? Money and profits were only based upon a frothy valuation that can never be sustained. Once the home valuation re-adjust, the banks are going out of business in drove.

It’s not Friday yet, on which day FDIC usually shutdown the banks. Better clean out your secure deposit boxes before your local branch disappears. Stick with the strongest bank for now: Citibank, Bank of America, Wells Fargo Bank, Bank of New York, etc. Eventually, the stronger banks may be so weak that you may want to move your money to treasury bonds and/or precious metals.

Looking through charts of financial companies, it’s almost like the dot com replay, with many companies going out of business. But dot com reinvent itself thru Web 2.0. I doubt that extremely few of these financial companies can come out bigger and better, simply because the decrease in the financial leverages directly translates into lower profit margins for banks and brokerage houses.

As I have blogged previously on high dividend stocks (up to 18% yield), you should never invest in a stock only because of its high yields. I excluded financial companies from my dividend stock lists back in 2006 for the now obvious reasons that they are totally scary. Now many of these financials are yielding 8% to 12%, but I still won’t touch them s for the near and intermediate term. Yes, each counter rally will be huge, if you can trade it. But what good will it do to your portfolio, if its long term value is going down and possibly way down from the current level?