It's been over a year since I last posted on liar loans -- these are mortgages which the borrower obtains despite offering no documentation on their income, employment or assets. These liar loans were also known as Ninja loans -- which is short for no income, no job, and no assets. The Associated Press reports that such liar loans will add $100 billion to the losses our economy is already suffering thanks to $400 billion worth of losses from subprime mortgages.

The problem we face as an economy is that it's hard to see where the liar loans end and the collateralized debt obligations (CDOs) and other asset-backed securities begin. In a sense, they are all liar loans. In the case of the mortgages, borrowers created paperwork that was inconsistent with their actual financial condition so they could get the money. In the case of CDOs, the issuing investment bank bought a AAA rating from a rating agency which created the illusion that the security was safe. Conceptually, there is little difference -- both depended on essentially forged paperwork to make the loan go through.

Why did banks issue liar loans? They were afraid to lose market share. But that doesn't make it right. As my mother used to say to me, if the other kids jumped off the Empire State Building, would you do it too? AP brings this to life in an interview with David Zugheri, co-founder of Texas-based lender First Houston Mortgage who said, "Everybody drank the Kool-Aid. They knew if they didn't give the borrower the loan they wanted, the borrower could go down the street and get that loan somewhere else.''

Bloomberg News reports that banks' subprime write-downs have hit $500 billion. The last time I checked, that figure was $400 billion. Bloomberg reports that New York University economist Nouriel Roubini forecasts such losses will ultimately total $2 trillion. I wonder if he would revise his estimate upwards.

Recently banks have been taking write-downs for their Auction Rate Securities (ARS). Bloomberg reports about $1.9 billion has been set aside so far to cover ARS losses. It notes that UBS AG (NYSE: UBS) set aside $900 million to cover potential losses and Citigroup, Inc. (NYSE: C) and Wachovia (NYSE: WB) each estimate that their ARS buybacks will cost $500 million.

Write-downs have been going hand in hand with capital raising. But banks and brokers have not been able to raise enough capital to offset the losses. Bloomberg calculates that they've raised "$353 billion of capital to cope with the write-downs. The gap between the losses and capital infusions, which stands at $148 billion, has regularly narrowed to about $80 billion as capital raising follows write-down announcements."

Can banks and brokerages raise another $1.7 trillion to keep up with the write-downs that Roubini forecasts? I sincerely doubt it.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in the other securities mentioned.

The suckers who bought into bank stocks a month ago thinking the worst of the credit crisis and financial company write-offs have mostly passed have seen much of their investment hammered.

And that is about to get worse. The easy-to-see reason is that mortgage paper is still losing value as housing prices continue to drop.

More ominous is the borrowing that banks are making at the Fed. According to Reuters, "Banks borrowed a record amount of funds from the Federal Reserve in the latest week as the year-old credit crisis took a persistent toll." That number hit $17.45 billion per day. In other words, the bank balance sheet problem is extending into the third quarter and may be getting worse.

The IMF has commented that the total write-off due to the mortgage debacle will hit $1 trillion. Only about 40% of that has been written off, which means that the next two or three quarters of earnings could be devastating.

Citigroup (NYSE: C) now trades at $18.59, against a 52-week low of $14.01. It has a market cap of $102 billion. If it has to raise another $15 billion to offset losses, especially if the stock sold to raise the money is below market, Citi's shares could move down to $12 or $13. Other large money center banks face the same trouble.

Banks will hit new lows before the end of the year.

Douglas A. McIntyre is an editor at 247wallst.com.

In this series, we take a look at the 25 stocks in the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

I'll give you just one hint at the nature of the problems MGIC Investment Corp. (NYSE: MTG) is facing: MGIC stands for Mortgage Guaranty Insurance Corporation. In other words, things were going just fine for the Milwaukee-based firm until about, oh, mid-2007, when the slime known as subprime hit the proverbial fan.

What went wrong? At number 4 on our list of SPX stragglers, MTG lost 89% of its value from June 30, 1998 through June 30, 2008. From its July 2004 peak at $78.95, the stock is down 93%, and is now trading near all-time low territory.

In the first quarter of 2007, it was business as usual for MTG. The company announced plans to acquire its sector peer, Radian Group (NYSE: RDN), for $4.9 billion in the stock. The merger would have created a massive mortgage giant with about $15 billion in assets. Unfortunately, the deal was never consummated.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

The suspense is over -- National City Corporation (NYSE: NCC) is the fourth and final Ohio-based regional bank to appear on our list of laggards. Based out of Cleveland, National City appeared to be faring well in the late 1990s. The bank had just completed some key acquisitions, and the stock was locked in a long-term uptrend. However, the next decade would prove considerably more challenging.

What went wrong? At number 6 on our list of SPX underdogs, NCC gave up 87% of its value from June 30, 1998 through June 30, 2008. The stock peaked at $40 in November 2005, and then edged sideways ... until it ran headlong into the subprime tsunami.

The first warning from NCC came in March 2007, when the bank said it would retain $1.6 billion previously set aside for non-conforming loans. In a filing with the Securities and Exchange Commission, NCC said it had recorded $11 million in write-downs through the first two months of the year, and suggested that a further write-down was "likely" before the loans were transferred.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

Seattle-based Washington Mutual, Inc. (NYSE: WM) was doing just fine on the charts, thank you, until the entire financial-services sector was upended in 2007 by the twin evils of caustic subprime loans and the ensuing credit crunch.

While it's an honor it would probably just as soon not claim, WaMu is a prime example of an otherwise decent stock that got slammed by a macroeconomic stealth bomb.

What went wrong? At No. 9 on our list of SPX stragglers, WM shed 83% of its value during the 10-year period that concluded on June 30, 2008. Prior to June 2007, the stock was trending higher along support from its 50-month moving average. Double-top resistance near $46 proved difficult to surmount, but WM was holding up respectably ... that is, until the first shock waves of the credit crunch hit in spring 2007.

Following news of massive subprime-related losses at hedge funds owned by Bear Stearns, Wall Street's attention was suddenly riveted to mortgage loans and the banks that carried them on their balance sheets. During WaMu's first-quarter report, chairman and CEO Kerry Killinger attempted to reassure anxious investors with the optimistic statement, "Over the past 12 months, we have taken a number of prudent actions to reduce our exposure to the subprime mortgage industry ... [which] limited our exposure to the mortgage market's downturn and position us well to expand and grow as market conditions improve."

When it comes to the banking industry, the good news just keeps coming. The head of the FDIC says that only about 13% of the banks on its watch list of troubled institutions actually fail. Except for the banks that go out of business, how could it get any better?

"We work with the primary regulator to give them extra care and attention, to nurse them back to health or to sell them off to another institution," said FDIC Chairman Sheila Bair, according to Reuters.

The comments side-step the issue that the credit crisis is getting worse. The IMF recently said that it could not see a bottom for the housing market and that financial companies would end up with $1 trillion in write-offs before the troubles pass. Bill Gross, the head of huge bond house Pimco, has essentially said the same thing.

The comment from the FDIC chief may be accurate based on a snapshot of the market today. It fails to acknowledge that the current watch list is only the tip of the iceberg.

Douglas A. McIntyre is an editor at 247wallst.com.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

First Horizon National Corporation (NYSE: FHN) operates as the holding company for First Tennessee Bank, making it one of many regional banks on our roster. If you're the intelligent, discerning audience that I assume you to be, I probably need only mention that FHN is in the mortgage-lending business for you to guess what might be ailing the stock.

What went wrong? At number 15 on our list of SPX laggards, FHN shed 76% of its value during the 10-year period ending June 30, 2008. The stock peaked at $48.65 in March 2004, but didn't start to plunge in earnest until July 2007. Say it with me, people: subprime.

While the share price didn't plummet immediately in response, FHN first revealed mortgage-related weakness in August 2006. The bank warned that quarterly earnings would be dented by deteriorating mortgage-market conditions, and profits fell during the next two quarters. FHN cited "lower gain on sale margins, further reductions in new mortgages and increased costs to hedge the servicing risks for mortgage loans" for the earnings weakness.

On September 4, 2007, FHN's head of employee services got chatty with The Memphis Daily News. John Daniel admitted that the bank was trimming its headcount gradually in a cost-cutting effort, but reassured the paper that the subprime crisis didn't have too deep an impact. "We don't see any significant reductions in staff as a result of what's happening in the mortgage industry right now," he asserted. Just a week later, on September 13, the Daily News reported that FHN was slashing 50% of its mortgage sales force, about 2,000 total positions.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

If you live or work in Cincinnati, it's impossible to avoid Fifth Third Bancorp (NASDAQ: FITB). Branches and ATMs pop up around nearly every street corner, and, if you're downtown at lunch time, you'll see hundreds of employees from FITB's downtown headquarters flooding the sidewalks. (They're easy enough to pick out, since they're required to wear gold 5/3 insignia pins.) And please, don't get me started on the madness that is Fifth Third Day, which naturally falls on 5/3. Despite its impressive banking dominance over this Midwestern city, FITB -- to paraphrase Chris Farley -- just can't seem to get its share price on the right track.

What went wrong? At number 16 on our list of SPX laggards, FITB shed 76% of its value during the 10-year period ending June 30, 2008. If you're mentally steeling yourself for another subprime sob story, Fifth Third won't deliver. The stock has crumpled steadily since its April 2002 peak at $69.70, defiantly blazing a path lower even as the rest of the broad market enjoyed a stellar bull run.

In the late '90s and through the turn of the century, FITB grew at a pace that cancer cells would envy. From CNB Bancshares to Vanguard Financial to State Savings, the regional bank swallowed up its peers and rivals with a voracious appetite to rival Jabba the Hut's. A fine growth strategy -- if your bean-counters are all on the same page. When FITB took a $54-million charge against earnings after improperly accounting for some mortgage-backed security investments, it drew the attention of the SEC. In the meantime, the Federal Reserve Bank of Cleveland and the Ohio Department of Commerce imposed a moratorium on any further acquisitions.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

Spoiler alert: Wachovia Corporation (NYSE: WB) is not the first financial stock we've scraped off the bottom of the S&P 500 barrel, and it will not be the last. You've already been treated to the gruesome horror stories of Fannie Mae (NYSE: FNM) and KeyCorp (NYSE: KEY); now, gather 'round the campfire to hear another spine-tingling, blood-curdling tale of subprime mayhem and write-down-related bloodshed.

What went wrong? At number 17 on our list of SPX underdogs, WB shed 73% of its value during the decade that ended June 30, 2008. And, if it weren't for that cutoff date, Wachovia might have snagged an even higher ranking on our roster. From its June 30 close at $15.53, the stock dropped as low as $7.80 by July 15.

The shares hit an all-time high of $65.94 in July 1998, and tapped their near-term peak of $60.04 in April 2006. After this last achievement, WB crawled west-by-southwest for more than a year, and did an amazing impression of a harmless downleg within its larger uptrend -- you know, until the whole subprime thing.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade – what went wrong, and what happens next.

The sad tale of KeyCorp (NYSE: KEY) is one of slow, steady progress up the charts -- followed by steep, stomach-churning declines. The stock topped out at $44.88 in April 1998, and then spent the next two years free-falling down the charts. This March 2000 bottom was followed by a slow and steady march higher that didn't reach its peak until February 2007, when the shares again began to cascade lower.

What went wrong? At number 24 on our list of S&P 500 laggards, KEY shed 69% of its value between June 30, 1998 and June 30, 2008, when the shares settled at $10.98. While the equity started slipping in February 2007, KEY didn't take its first massive hit until the following October. In its third-quarter earnings report, the financial-services firm announced a profit of 54 cents per share -- woefully short of analysts' consensus forecast, which called for 71 cents per share.

At the time of the earnings miss, the subprime-infected finance sector was already sweating under the glare of Wall Street's spotlight, and KEY's slip-up resulted in a single-day drop of almost 6%. Chairman and CEO Henry Meyer III assured investors that the worst was over for banking stocks ... but, on May 30, KEY plunged again after hiking its forecast for net loan charge-offs. A few weeks afterward, on June 12, KEY sheepishly confessed plans to slash its dividend by half in an attempt to shore up capital. Traders unleashed their wrath with particular enthusiasm; during the course of that single session, the stock shed nearly 24%.

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

Fannie Mae (NYSE: FNM) hardly needs an introduction -- along with her brother, Freddie Mac (NYSE: FRE), she's been grabbing headlines all over the place lately. As government-sponsored mortgage lenders, the siblings have been at the forefront of the endlessly unraveling subprime mess during the past year. But Fannie's problems started well before the word "subprime" entered the American lexicon.

What went wrong? At number 25 on our list of S&P 500 laggards, Fannie shed 68% from June 30, 1998 through June 30, 2008, when the stock closed at $19.51. In fact, she's been bleeding value consistently since her December 2000 peak at $89.38. So, what happened? A New York Times article dated December 3, 2000, puts it like this: "More home buyers will be able to secure cheaper loans next year because Fannie Mae and Freddie Mac ... are raising the limit on the size of home mortgages they buy from banks. Under the new limit, 150,000 more families will be eligible for the lower-cost loans in 2001."

A year after this blurb was published, our friend Fannie announced that she had committed to buying a record $49 billion in mortgage loans -- and the U.S. slipped into an economic downturn. During the next several years, regulatory outcry about the accounting practices at Fannie Mae and Freddie Mac overshadowed concerns that the gruesome twosome may have become dangerously oversized and precariously leveraged.

The Washington Times reports that Phil Gramm, UBS AG (NYSE: UBS) vice chairman and senior economic advisor to John McCain (R.-AZ), thinks we're a nation of whiners. Gramm's UBS is a leader on three important fronts in the effort to destroy the U.S. economy: the $1.3 trillion subprime mortgage catastrophe, the $330 billion Auction Rate Securities (ARS) freeze, and a tax evasion scheme of unknown magnitude.

The Washington Times quotes Gramm as saying: "We have sort of become a nation of whiners. You just hear this constant whining." UBS probably pays Gramm well for his services so I can see where he's coming from. He is making money and he's the only one who matters. But if you think he is helping McCain, think about these things:

Over the next few years, the market will be inundated with books purporting to explain the shady and incompetent practices that characterized the subprime lending market. With Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud, and Ignorance, Richard Bitner, the founder and former president of a subprime lender, is among the first to reach bookstores. The results are about what you'd expect: something that is not well-written, halfheartedly researched, and a pretty good introduction to an industry that is such a big part of the financial news right now. A good indication of how quickly this book was put together: there's no index!

My first complaint: the title is misleading. While Bitner does provide an insider's view, hardly anything in here is confessional. Bitner portrays himself as an ethical guy -- I have no reason to believe he wasn't -- and recounts some of his dealings with less ethical mortgage brokers and the like. He also provides an overview on the conflicts of interest that resulted in failures at every level of the industry: mortgage brokers, lenders, investment banks, rating agencies, appraisers, borrowers, and more.

Confessions of a Subprime Lender isn't great. It isn't even good really. But there are so few places to go for a broad overview of the industry that it's worth a look if you're hoping to understand the era. For some insightful commentary on the current mess, check out the author's blog at lendingsanity.com.

Baudouin Prot , CEO of one of Europe's largest and best run banks, BNP Paribas (OTC:BNPQY), said that he believes that the worst of the subprime mess is behind us. What makes this statement important is that BNP is one of the few major banks not to take a serious hit from subprime. The bank estimates that their exposure to subprime is minimal this year and was only about 200 million Euro in '07.

In a Marketwatch report, Prot says: "There are no doubts the crisis isn't over. However, the worst should be over and I believe that in the second semester the crisis may normalize."

While I am skeptical of any bank CEO telling me that the worst is behind us, as they certainly have their own agenda of keeping their stock prices up, when the CEO of a bank that has had little exposure to the crisis tells me that he thinks the tide is turning, I would listen. After all he has an interest in watching some of his competitors fall further, as he could then swoop in and buy on the cheap. The fact that he isn't talking down the industry means that he truly thinks that we are beginning to see the light at the end of the tunnel.

No one seems ready to call a bottom in the financial sector, but with this report, investors may want to start researching the financials that are in the best shape, as we may potentially be near a bottom.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 6/29/08.