Investing in Too-Big-to-Fail Banks: More Dangerous Than It Looks

There is a line of thinking among bank investors that goes like this: Even if big banks take a lot of stupid risks, they can remain decent investments because they will always be bailed out by the government when those risks backfire. Not only will we never let Bank of America (NYSE: BAC  ) or Goldman Sachs (NYSE: GS  ) go under, but we will flood them with cheap loans at the first sprinkle of trouble. So what's the risk?

The risk may be bigger than you think. Citigroup was bailed out, but only after shareholders lost more than 90% of their wealth. But it goes deeper than that. Last month, I sat down with Hoover Institute economist Russ Roberts. He argued there's precedent for ditching the entire philosophy of bailing out the largest banks. Have a look:

With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or whether finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan Chase is a buy today, I invite you to read our premium research report on the company today. Click here now for instant access!


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2322943, ~/Articles/ArticleHandler.aspx, 12/19/2014 8:35:50 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement