SEE UPDATE BELOW: CITIGROUP SHARES CRASH TO $1.00!!!

Recently, I watched a video of Jim Cramer on TheStreet.com. Now, whether you agree or disagree with him, you have to admit that this guy has been around for years and knows the financial system and knows alot of the players in it. In the video, he talks about why Bank of America should dump Countrywide and he discusses the banking/credit problems and mentions names of mid-size banks that are in serious trouble (nothing shocking as we all know that this is a serious credit crunch). He states that if BofA goes ahead and purchases Countrywide, that it will drag the whole BofA franchise down - again no suprise here.

What scares me, is what he said at about 1:25 into the video. He says that if BofA refrains from buying Countrywide then it's in pretty good shape by itself and that BofA is big enough where it "could conceivably go hat in hand to a sovereign fund and sell off 10% of the company..........which they may have to". WHOA! Wait a minute, you mean you're telling me that even Bank of America is in big trouble here (even without the burden of acquiring Countrywide)? We all know that Citigroup had to sell off part of the company to foreign sovereign funds (at ridiculous interest rates).

Just how much trouble are these big banks in?

He also notes that WaMu and Capital One are in big trouble too. (Note WaMu is now toast)

Watch the video at the link below and decide for yourself just how much trouble the U.S. banking system is in.

Update July 11, 2008: IndyMac Bank Fails and is Seized by Federal Regulators. An apparent run on IndyMac Bank by depositors seeking to withdraw their funds in a panic was apparently the last straw for flailing institution. The bank will be taken over by the FDIC. While accounts of $100,000 or less are protected, as many as 10,000 customers could lose some $500 million in uninsured deposits.

Update July 14, 2008: Looks like the federal government is indicating that IndyMac, Freddie Mac, and Fannie Mae will be propped up, but after that the spigot may be turned off. As the AP news article below says "The U.S. government is signaling it won't throw a lifeline to struggling financial companies -- except for mortgage linchpins Fannie Mae and Freddie Mac -- marking a shift to a new and potentially more volatile phase of the credit crisis." So what happens when companies like Lehman Bros., Washington Mutual and others that have problems need help.....well they may be left to sink or swim and then we'll really feel the effects of this mess. Also, please see the Reuters article below "Many more bank failures likely after IndyMac". One analyst estimates that as many as 300 banks could fail over the next three years. Things may have just started with this credit crisis and it may get a whole lot worse!

Update Oct. 5, 2008: In the past couple of months since my last update, IndyMac, Fannie Mae, Freddie Mac, AIG, Lehman Bros., WaMu, Wachovia and others have imploded. As I write this, the European banking system is also facing great turmoil and bank failures, LIBOR has shot up, and the credit markets are essentially frozen. Banks are so afraid that they won't even lend to each other. Why should you care? If banks won't lend to each other, they certainly will not lend to businesses and individuals. The resulting credit contraction will cause a drastic meltdown of economic activity. The banks are scared because they don't know what the other banks are holding in terms of credit default swaps (CDS). There are some $55 Trillion of these CDS derivatives out there. Many of the CDS contracts related to Fannie and Freddie will be settled this week. This is when the blooshed may start because when the smoke clears, that's when everyone will see how much everyone else has lost. CDS based investments are held by many banking institutions but no one really knows how much the other guy is holding because these CDS derivatives aren't regulated! There are alot of other CDS contracts expiring this month and this will be a real test of just how much of an effect this could have on the financial system and ultimately the economy.

For a detailed paper which includes banks that may be at risk, see the link below to Weiss Research Paper on why the bailout won't work.

Update Jan 14, 2009: They year appears off to a rocky start with banking troubles starting to emerge, particularly at Citigroup and Bank of America which has asked for more federal bail out funds (TARP). Citigroup was forced to sell of its Smith Barney brokerage unit to Morgan Stanley. Citi shares fell today by over 20% to close at $4.53. Bank of America and HSBC also have problems that will come to light this year. One notable quote from Christopher Mustascio, managing director at Stifel Nicolaus (see CNBC article below for more):

"There's certainly going to be more bank failures in 2009 as the economic backdrop continues to deteriorate and the smaller banks start to feel the pain," Mustascio said. "In the past quarters much of the pain has been on larger banks, investment banks, on a mark-to-market basis that has been driving asset valuation writedowns. Now you've got a full-fledged recession...Some of these banks are not going to be able to deal with that, and you're going to see failures."

Update Feb. 23, 2009: Federal regulators will start conducting bank "stress tests" to examine the viability of the 20 biggest banks in the U.S. See article below.

Update Mar. 5, 2009: Citigroup shares crash to less than $1 per share! What was once the LARGEST banking concern in the world has now vaporized into dust! Citigroup shares once peaked at just over $55 per share (May, 2007) and have now been reduced to penny stock status. UNBELIEVABLE!

Bank of America shares have also plunged in recent months and are a little more than $3 per share at this point. These low share prices for Citi and B of A indicate that there is something VERY WRONG with the banking system. Also, Wells Fargo, B of A and JP Morgan face possible ratings cuts. See article links below.