After a month of logging double-digit percentage gains day after day on no news, low-quality financial stocks succumbed to reality yesterday:

Company

Tuesday's Decline

AIG (NYSE:AIG)

(20.58%)

Fannie Mae (NYSE:FNM)

(17.62%)

Freddie Mac (NYSE:FRE)

(17.03%)

Hartford Financial (NYSE:HIG)

(11.34%)

Ambac Financial (NYSE:ABK)

(9.66%)

Citigroup (NYSE:C)

(9.20%)

Bank of America (NYSE:BAC)

(6.42%)

This was inevitable. Even Lehman Brothers -- yes, that Lehman Brothers -- saw its pink-sheet-listed shares almost quintuple last month. Obviously, that's nuts. There's speculation, and there's insanity. A bankrupt company's stock attracting such attention is purely the latter. The rally in financial stocks was getting grossly out of control.

Some of these companies, particularly the first three on the list, likely have no value left for common shareholders. Fannie Mae doesn't even try to beat around this in its annual report, writing:

Prior to the conservatorship, our business was managed with a strategy to maximize shareholder returns. However, our conservator has directed us to focus primarily on fulfilling our mission of providing liquidity, stability and affordability to the mortgage market and to provide assistance to struggling homeowners ...

We can give no assurance that we will remain a shareholder-owned company. At the time we were placed into conservatorship, the then Secretary of the Treasury indicated that there is a consensus that we and Freddie Mac pose a systemic risk and that we cannot continue in our current form ...

According to a statement made by the then Secretary of the Treasury on September 7, 2008, because we are in conservatorship, we 'will no longer be managed with a strategy to maximize shareholder returns.'

There's really no other way a company can politely say, "Hey, people, the government owns us. There's nothing left for you. Do yourself a favor and stay away from our stock."

There's value somewhere in banking, but the complexity and optimism that's permeated the industry lately makes finding it risky and difficult. The Wall Street Journal reported yesterday that Bank of America might begin repaying taxpayers part of the $45 billion in TARP funds it holds. This is great news for the company -- maybe the first truly good news in a year -- and shares still fell more than 6%. If that isn't a sign that optimism got waaay ahead of itself, I'm not sure what is.

For related financial Foolishness:

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. The Fool has a disclosure policy.