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So here is the question: why are the banks so down? Do we have another Lehman Brothers like scenario (well may be Lehman Brothers light)? Although I don't see any equivalent in the 2008 crash, there have to be some issues for concern otherwise the bank stocks shouldn't be this much down. By the way, the 2008 crash was not caused by the recession in the subsequent two quarters, but because of the fear that the entire banking system might collapse.
Although I don't see systematic risk like 2008, here are some of the possibilities:
1. There won't be any QE to the rescue. I don't think the American people have any patience for that any more.
2. The FED will not lower rate even if we go into a recession since the rate is already too low and again people probably can't stomach another 0%. At some point, people with fix income will make noise.
3. Small cap corporate debt. The Russel 2000 has been under performing vs. the SP, DOW and Nasdaq. There have been some talks of these companies being overly leveraged and if there is a shock in the market, they won't be able to service their debts so either they go bankrupt or have to lay off a lot of people. The big cap companies may be able to weather the down turn but not the small ones. And since the banks themselves have been leveraged, it's the domino affect that will unwind into a crash.
4. Exposure to European debts and the Italy budget issue.
5. Back in 2008, investment banks were allowed to leverage up to 30:1, and although post 2008 regulations may not allow them to leverage that much, something tells me they somehow found a way to do it.
6. With interest going up so housing has peaked. Not only that if housing were to go up any higher, nobody can afford the house any more ... like 2007 that is we start to flipping house again.
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