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Within the circle of investors in financial stocks, the most daring and astute trade in recent memory goes by the name “Citibank at 8”. In late 1991 the US was in recession and, as Citibank struggled with bad real estate loans, the shares slipped 77 per cent, to below $8 (equal to $2.50 today, after splits), and less than 40 per cent of book value. But by selling assets, cutting its dividend and raising fresh capital, Citi’s shares doubled in less than a year, reached the low $30s by late 1993 and by 1998 had soared more than tenfold.

Wishful investors in today’s credit crisis spurred financials into small rallies in January, April and July but the stocks have continued to wilt. There is no consensus: some traditional managers are buying with both hands and others watch eagerly from a safe distance, while the hedge fund world is net short, betting on further financial chaos.

Financial stocks around the world have responded to the ongoing crisis in credit and confidence by falling 30-40 per cent in the past year, or between two and three times the declines in the broader markets of the US, Europe and the world (down 11 per cent, 15 per cent and 13 per cent respectively, according to MSCI). The bottom chart plots the one-year history of the Financial Select Sector SPDR ETF that has become a popular vehicle for expressing points of view on US financials.

Worse yet, the massive write-offs of flawed assets do not mean the end of bad news: Goldman Sachs reports that Wall Street’s estimates for US financials are projected to fall 39 per cent in 2008 (following 2007’s 34 per cent drop). On five-year forward estimates, Goldman concludes that, despite their fall, the financials are the third most expensive sector in the US market, after utilities and materials.

Interesting Article on Student Loans:

A 2006 study by the department's National Center for Education Statistics followed federal loan borrowers for 10 years, ending in 2003-4, and found that nearly 10 percent defaulted. (The average debt among the two-thirds of 2003-4 college graduates who use loans is about $20,000, according to the College Board.) And with more students borrowing, more students are potentially at risk.

Garrett Mockler filed for bankruptcy protection in December 2004, after months of struggling to make payments on credit cards as well as on $40,000 in student loans. He was working multiple jobs as a teacher, dancer and choreographer in Los Angeles after earning a Master of Fine Arts in 2003.

His lenders wanted more than $400 a month on top of credit card debt, Mockler said. "All my bills started piling up," he said. "It was either pay one bill or pay another or not eat or not have a roof over my head."

He had to scrimp to save $200 for the bankruptcy filing. Then he emerged from bankruptcy and found that all his student loans had stuck with him. While the federal government gave him more forgiving repayment terms on his guaranteed loans, he said, the company that had made him a private, or unguaranteed, loan had no incentive to negotiate a payment plan with him because he had no way to avoid the obligation.

While trying to learn more about student loans and his rights in dealing with lenders, Mockler said he came across StudentLoanJustice.org, Collinge's site.