Ok, now I want to write a diatribe against the house: I don't think much has been learned from the past when it comes to understanding outlier effects and the associated risks of trading. LTCM, Barrings, Amaranth - no one heeds the lessons. PHDs, quants, hire as many as you want - the smartest guys in the room had the models to prove LTCM would never lose. They overlooked one thing - you can't model fear and greed, and just how markets will react when things go into crisis mode. Wall Street is self-serving - it does not exist to protect institutions from the products they sell them. WS looks out for number one. The Street creates, packages, and sells risk to everyone - and they get you coming and going. No one ever really knows how that product will trade in the marketplace under severe conditions. Its all fun and games until the music stops - then look out. The Street owns the arena, the marketing department, the "chinesewall", the concession stands, the teams - and they sell you the tickets to the game. Its a beautiful work of capitalism at its finest. But its still the most exciting game in the end
Instead of buying the big banks, have you considered buying smaller regional banks that may get bought out, and that wouldn't have a large exposure to derivatives?
Yes, I've considered that and it's been successful in the past. But the regionals have not pulled back as much as the bigger banks just yet. Maybe they will shortly? However, these regionals seem to follow the lead of the bigger banks. Namely if the derivative exposure causes a problem in the sector, the smaller banks will follow.