“The Big Takeover” by Matt Taibbi is probably the best article written to date explaining the financial crisis and how we got to where we are now. Taibbi’s necessarily lengthy article explains the problems, names the “poipetrators”, and exposes all of the conflicts of interest— absolutely a must read.

AIG, Goldman Sachs, and J. P. Morgan turn out to be the major players causing perhaps the greatest financial crisis in modern history— even if the pain is unlikely to get near Great Depression proportions, the dollar losses to individual investors have certainly gone as far.

JPM was the brewmeister of the CDO, a vat full of various kinds of income securities, determined to be less risky because the income on most would almost certainly keep flowing— kind of like the once popular junk bond fund that Wall Street insisted was not risky …

Crash! The 2007 thru 2008 financial crisis halved 401(k), IRA, and Mutual Fund values in a matter of months. For many, retirement dates had to be pushed back; for others, new jobs had to be found. The tragic flaw? No income allocation in the investment program. Market value builds egos; income pays the bills.

Few employers cautioned Savings Plan participants that 401(k)s are just not defined benefit programs. Few mutual fund distributors suggested to benefit departments that their programs were missing something of critical importance.

Throughout the meltdown, all investment securities fell in market value. But the vast majority of income securities, including closed end income funds (CEFs), have continued to pay interest and dividends. Market value builds over-confidence; income pays the bills.

The Working Capital Model (WCM) is a comprehensive system for investment management that is based on uncompromising rules of engagement. …

I don't actually know how long is now the time to buy financials has been part and parcel of every interview and while I have been underweight for ages, and still am, there is one aspect to this whole meltdown that we need to keep in mind.An aspect that could be relevant especially if one year or two year performance does not matter.Of the larger financial companies, will there be any that fail as a result of the entire event still unwinding? I believe Bear Stearns market cap topped out in the $20 billion range and if that is correct I would not say it was that large.Obviously some folks think there will be failures and with history as a guide there might be one or two which would not be a lot. Point ...

Banks have had a rough time lately and the market performance of their stocks reflect that. Now that Secretary Paulson and some others are calling a bottom for the financial crisis, it is timely to look at the Keefe Bruyette & Woods Large Bank Index and the ETF that tracks it (KBE).

Technicals:

The five-year chart shows the KBW index (BKX in black) versus the S&P 500 (proxy SPY in gold). The BKX 200-day average is shown in blue and the 50-day average is shown in violet.

The YTD chart shows the KBW large bank ETF (proxy KBE in blue) versus the S&P 500 (proxy SPY in red).

The KBE candlestick chart provides alternative detail of the YTD performance of KBE alone, along with its 200-day and 50-day day moving averages.

KBE has massively underperformed the S&P 500. As of May

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