The Equity of many Banks are Worthless

Today the FDIC issued a list of Banks it believes are going to fail. This is not suprising to me. First let us examine what a these "Banks" have become. The Banking model of the typical commercial bank makes money by the spread of deposits taken in, versus the money it Lends out. The Bank Burrows money at a lower rate and lends it out a higher rate. However if we examine what these banks loan money for, and what they lend the money against it is one asset, Real Estate. These Banks are ultra over leveraged to the exposure of Homes amd House Prices. They lend money based on The value of Homes in the Form of Mortages and made more loans based on the value of these homes with home equity loans. The Balance Sheets of these Banks is a joke. When the Shareholders find out their equity is worthless they are suprised. Should they be suprised? Not in the slightest bit. If they took the time to look at the Balance Sheets of these Banks they could easily see the amount of debt the Bank has taken on, and the small amount of equity capital they keep on hand.

The Market seems to be telling us that the Banking System of The United States is going to Change as we know it. The equity of most of The Banks are worth nothing. They are not even going to be able to meet their debt obligations. As you know the Debt Holders, and Creditors of the Banks are going to be the ones who are first in line in the event of a Bankruptcy. The equity holders are basically giving up their money to feed the hungry debt holders.

In the Last Bear Market the S and P 500 Lost about half of it's value, in this Bear Market I see it losing no less than 50%, in most cases the market will lose much more of its value due to the Housing Bubble that has been built up over years and years of Lending ontop of increased prices. History has shown that in times of increased credit, and additional lending based on incresing asset values (house prices) will create both substantial booms, and subsequent busts. Once the Real Economy in Main Street feels the effects of this bust the market will only fall further. Happy Trading.