Is it Washington Mutual which has its fair share of exposure to the subprime market and has lost 85% of its value in just a few short months or is it Lehman Brothers which struggles for additional capital to keep its core business afloat.

Deciphering bank failures is difficult, but it seems sure that the cycle will continue.  Through the 1980s and 90s savings and loan busts one common trend was familiar, real estate blowups.  But the problem was much more isolated, the world watched as Texas real estate, primarily Houston and other areas saw extreme growth in pricing until supply caught up with demand and the bubble burst.

Today’s problem is far greater in that it is no longer an isolated problem.  Though the coastal areas and big cities have seen the worst declines, its safe to say that the United States as a whole is going through a “real estate recession” now worth $4 Trillion.  The $4 Trillion figure is made equally scary by the fact that the economy will have $4 Trillion of equity that can be borrowed against.  HELOCs and second mortgages fueled the buying frenzy that resulted in the overexpansion of Starbucks and growth in home retailers like Home Depot and Lowe’s.

Back to the topic at hand, it appears as though many of the largest banks are just a few quick steps away from the next Bear Sterns.  Washington Mutual can’t raise money, Lehman has extended its hands to investment banks in Korea and Bank of America is trying to tell itself that a high dividend is sustainable.  Only time will tell, but one thing should be made certain: the financials are no place for a prudent investor.