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9:00 AM EST Tuesday, July 15, 2008: The new game on Wall Street is Pick the Next Bank to Fail and short it. Apparently the FDIC has a secret list of dying banks it's watching. How good the list is open to question, since apparently IndyMac Bank wasn't on the list and it collapsed big time. How big? CNN covered its re-opening yesterday with gruesome interviews with pissed-off depositors who'd waited all night to get what was left of their money.

There is now a full-fledged "industry" devoted to proffering advice on how much money you should and shouldn't have in your local failing bank. The widespread assumption is dozens of other banks will collapse in coming days. And the last thing you want is either your money in them or having to deal with some spooked-out, stressed-out Federal agency now running your erstwhile favorite bank.

We all know you can have $100,000 in a failed bank and the FDIC will give it back to you, in single dollar bills if you wish -- probably of the new issue, viz:

We all know you can have more and it will be insured -- for example if you and the spouse do a joint account, each of you do individual ones and you have $250,000 in an IRA. In fact, I saw someone's convoluted calculation how they could actually get to $1,000,000 in FDIC insurance in one bank. The problem with all this calculation is paperwork. If your paperwork isn't one thousand percent perfect -- perfect for the bureaucrats -- than you're out of luck and you won't get your money. I kid you not. Lousy paperwork will cost many IndyMac depositors a lot of money.

In view of all this, your job this morning is to go to your bank this morning and remove every nickel you have in thatl bank above $95,000. That $5,000 under $100,000 allows a little cushion for interest, which some banks actually still pay. Take the excess money out and distribute it among other local banks. I'm shopping for a new toaster. (Fat chance.)

Should I be seriously worried about my local bank? This is a picture of its "health." I've disguised the name and last night's close.

It's not a pleasant story. Last night the Wall Street Journal's MarketWatch wrote,

BOSTON (MarketWatch) -- Banking stocks came under intense selling pressure Monday as investors and analysts worried that worsening housing and credit problems could claim more banks after the failure of IndyMac Bancorp Inc.

Regional-banking shares led the decline in the financial-services sector on Monday. Among the biggest losers were National City Corp. (down 14.7%), Washington Mutual Inc. (down 34.7%), Zions Bancorp Inc. (down 23.2%), Sovereign Bancorp Inc. (down 14.1%), KeyCorp (down 10.9%), First Horizon National Corp. (down 24.8%) , M&T Bank Corp. (down 15.6%) and Regions Financial Corp. (down 16.5%)

Read those declines again. They range from 11% to 35%. That's not a decade or a year's decline. That's one-day! That's serious crisis. You can lose a lot of your money you need to pay tomorrow's food or next week's business payroll.

If I haven't made myself clear, I'll say it again. Your first job this morning is to get down to your local bank and remove every nickel of yours in that bank above $95,000.

I'm am not panicking. (Yeah.) Nonsense. I am panicking. As I wrote yesterday, this is the worst financial crisis since The Great Depression. I did a Google image search this morning on "IndyMac Bank fails" and this is the number one image. (Google is telling us something?)

This black and white photo wasn't yesterday. This next picture shows the line of customers yesterday outside a branch of IndyMac Bank in Pasadena California. They do not look like happy campers. They also look heavier than in the ones in the 1930s.

In fact, they weren't happy campers. A big percentage had more than $100,000 in the bank. And to their luck, the FDIC declared a "dividend" of 50% of uninsured deposits, to be paid within 30 days, before the final distribution of cash (hopefully more than 50%) to uninsured depositors from the final assets. That 50% uninsured dividend won't necessarily happen for other bank failures, but is happening in this case. You can read more on the FDIC's web site: FDIC Dividends from Failed Banks and also Information for IndyMac Bank, F.S.B., Pasadena, CA.

The MarketWatch article continued:

Washington Mutual shares closed the session off nearly 35%. Lehman Brothers analysts in a report Monday said WaMu could be forced to "substantially" boost its reserves to cover an estimated $28 billion of losses on the balance sheet, with $21 billion coming from mortgages. They said home prices and mortgage credit are showing no signs of stabilizing.

WaMu shares rebounded almost 9% during the evening trading session after the lender said it significantly exceeds all required capital levels for "well capitalized" banks. The lender also said it has more than $40 billion of "excess liquidity," which usually refers to assets that can be sold for cash quickly without affecting prices much.

Meanwhile, National City shares were briefly halted Monday amid a panic-driven plunge before the company in a statement tried to quell what it labeled market rumors. "National City is experiencing no unusual depositor or creditor activity," the Cleveland-based bank said. The stock rebounded from a low of $2.99 but still finished the day down almost 15%.

"The housing market collapse remains the alpha and omega of the financial crisis. With house prices still in freefall and likely to fall a further 15-20%, asset write-downs will continue," added Richard Iley at BNP Paribas in an investor note Monday.

"Capital destruction will continue to sap the commercial-banking system, which entered the credit crisis unusually exposed to the consumer following a breakneck expansion of balance sheets this decade," he said.

In May, MarketWatch reported that IndyMac was one of the financial institutions most likely to be claimed by the credit storm. IndyMac shares closed down 57% at 12 cents on Monday.

Jittery investors were selling regional-bank stocks across the board Monday on concerns of another potential run or failure.
"Market rumors, especially in this environment, can become somewhat self-fulfilling prophesies," wrote BMO Capital Markets analysts in a report Monday, raising the specter of Bear Stearns.

Standard & Poor's on Monday lowered its fundamental view on regional banks to negative.

"Based on early earnings reports from U.S. regionals, we think that loan credit quality continues to deteriorate, led by non-performing loans to housing developers, who are dependent on a housing price recovery," said Erik Oja, S&P regional banks analyst.

"This is likely to lead to higher levels of loan loss provisioning expenses in '09 and '10 than we had expected," Oja said. "In addition, this could lead to banks needing to further shore up their capital levels, an action which may result in dilutive common and preferred stock offerings, and/or additional dividend cuts." ...

Companies set to report later this week include Citigroup Inc. (down 6% yesterday),. J.P. Morgan Chase & Co. (down 4.3%) , Bank of New York Mellon Corp. (down 3.6%) , PNC Financial Services Inc. (down 7.9%) , Capital One Financial Corp. (down 7.4%), State Street Corp. (down 6.5%) , Northern Trust Corp. (down 4.7%) , U.S. Bancorp (down 9.9%) , Wells Fargo & Co. (down 6.2%) , Marshall & Ilsley Corp. (down 10.4%), Huntington Bancshares Inc. (down 17.2%) and Zions, according to Thomson StreetEvents.

Yesterday, I wrote: We are in our worst financial crisis since the Great Depression. As an investor your strategy is sixfold -- modified slightly for today:

1. You should not have more than $100,000 on deposit or invested in any bank. That's all the FDIC insures. That's all you'll get back quickly if and when your bank fails. The depositors in IndyMac are getting their $100,000 plus 50% of what else they had -- though they'll have to wait 30 days.

As you know, there was a run on IndyMac bank last week and it failed -- the first major bank to shut its door since the mortgage crisis erupted a year or so ago. You should also check your IRA. It's insured only to $250,000.

Runs can start for any number of reasons -- most of which have nothing to do with the underlying financial soundness of the bank. Runs start with rumors. I'm not trying to start one. But it is important to get your business and personal monies in excess of $100,000 out of your local bank into other local banks.

I don't believe I can predict which will be the next bank to fail. Nor do I necessarily think that falling stock prices are a necessary condition to a failure. But they sure add to people's panicking.

A reader asked this morning "What about online brokerage accounts?" My son, Michael, has a trading account with Schwab. I'm happy to report that the Charles Schwab Bank is FDIC insured. I have an account with Fidelity. I couldn't find anything on their web site about FDIC insurance.

2. You should not have your money in a short-term money market fund -- without checking what it invests in. Don't be surprised at the junk you find.

3. You should not be invested in any hedge fund that uses leverage.

4. You should not be invested in any overtly financial stock like a bank or an investment bank, or a stealth financial stock, like GE which last year got more than half its profits from finance.

5. Cash is King. I've intoned that boring mantra since mid-November, when I said "Go 100% to cash." But I reiterate it today again. I see too many cockroaches around affecting too many stocks (not just financials). Cockroaches include high oil, inability to raise money for capital projects or new important acquisitions, etc. Not to be inconsistent, I'm willing to allow you to go long with 5% of your investable monies. I mentioned some interesting stocks on Friday. You should take another 5% and go short. It's not too late. Be wary and keep a close eye. If your shorting goes 7% against you, cover.

6. The only "safe" investment is to short financials. You have many choices. They're all cratering.

The Rabbi
This is the story of a popular young Rabbi who, on Sabbath Eve, announces to his congregation that he will not renew his contract. He explains that he must move on to a larger congregation that will pay him more.

There is a hush. No one wants him to leave.

Sol Epstein, who owns a couple of Toyota and Lexus dealerships in the city stands up and proclaims: 'If the Rabbi stays, I will provide him with a new Lexus every year and his wife with a Toyota Sienna to transport their children!'

The congregation sighs in appreciation, and applauds.

Sam Goldstein, a successful entrepreneur and investor, stands and says: if the Rabbi will stay on here, I'll personally double his salary, and also establish a foundation to guarantee the college education of all his children!!'

More sighs and loud applause.

Sadie Goldfarb, age 88, stands and announces with a smile, 'If the Rabbi stays, I will give him sex!'

There is total silence. The Rabbi, blushing, asks her: 'Mrs. Goldfarb, whatever possessed you to say that?'

Sadie's 90 year old husband Jacob is now trying to hide, holding his forehead with the palm of his hand and shaking his head from side to side.

His wife replies: 'I asked my husband how we could help? He said, 'Fuck the Rabbi!"

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.
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