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TheStreet.com's Jim Cramer says he has no confidence in these hated names, and neither should you.

The financials are flying -- there are finally bids for most of them underneath. Many, including Lehman (NYSE: LEH) (Cramer's Take), are running. What a great time to put the negative cards on the table and put the negatives in perspective. That's right, let's look at the financial Achilles' heels. What could go wrong? In other words, here's the companion piece to Doug Kass' positive conversion. Here's what I am worried about even as Doug thinks everyone's too worried and the bottom is being put in.

To get started, let's look at what's not causing the endless declines in the stocks -- don't worry, we will get to the financial dirty dozen when I finish this preamble.

First, it ain't earnings. Earnings aren't going to be that great. But that's why the S&P is at 14 times. It can go to 12 or 11, or most likely stays at 13-14, but the E goes down (earnings).

Second, it ain't oil. The stocks sensitive to the increase in oil have room to go down, but the price of oil is being factored in slowly but surely.

Third, it isn't inflation or recession. Those two are being baked in each day.

TheStreet.com's Jim Cramer says it'll be a huge, bizarre investment that sticks -- not a bid for Wachovia.

Why is there so much chatter about Wachovia (NYSE: WB) (Cramer's Take) getting a bid? Why do people think that its deposit base is worth the heartache of dealing with its mortgage portfolio?

We have all heard the chatter about a potential bid for Wachovia, and it sure would be sweet, because the stock has been one of the worst of the group. It doesn't have a CEO, so that fits the scenario of a company that could be for sale. The franchise was always a solid one until now. And I will admit that the secret to the bulls' case for a better second half is a bid for Wachovia, a premium bid that takes everyone's breath away and causes a short panic.

My problem is that if you wanted to buy Wachovia, why not wait? What's the hurry? Is it that you might miss a chance at a bottom? Is there someone else out there who might want it? Do you perceive a bidding war, for instance, between JPMorgan (NYSE: JPM) (Cramer's Take) and Wells Fargo (NYSE: WFC) (Cramer's Take) for WB? How about USB (NYSE: USB) (Cramer's Take)?

In a rare indication that there may be some reasonably intelligent executives running things at America's top banks, Wachovia Corp. (NYSE: WB) has decided that it will stop offering a mortgage that allows customers to pay less each month than the bank charges in interest.

Hold on. What? The "Pick-a-Payment" mortgages allowed borrowers to choose one of four payment options each month -- as in, "Do you want to pay off your mortgage or do you want to buy a new television and every season of Golden Girls on DVD?"

You can probably guess which option many people chose. The problem was that paying less than the interest each month led to negative amortization -- owing progressively more on the house each month. Recently it's been discovered that home values are not contractually obligated to go up every year and the result is that many people could end up owing more than the home is worth, trapping them in it -- and leaving the bank with a hefty loss in the event of foreclosure.

Wachovia has hired Goldman Sachs (NYSE: GS) to evaluate its loan portfolio and suggest alternatives. I wonder how much they're paying. I could have told them that letting borrowers decide whether they want to pay the interest on their mortgages was a bad idea.

EMCOR Group (NYSE: EME) plans, installs, operates and maintains the systems that create facility environments. These include installations for power generation, power distribution, lighting, security, communications, plumbing, waste treatment, heating, ventilation, refrigeration and air-conditioning. The firm also provides facilities management and maintenance support. It serves commercial, industrial and institutional clients such as Bristol-Myers Squibb (NYSE: BMY) and Wachovia Corporation (NYSE: WB). Johnson Controls (NYSE: JCI) is a major competitor.

The Street was surprised last week, when EMCOR guided FY08 EPS from $2.08-$2.28 to $2.22-$2.42 and FY08 revenues from $6.3-$6.5 billion to $6.8-$7.0 billion. Analysts had been looking for $2.31 and $6.76 billion. The CEO cited "solid order activity" and a "strong contract backlog" for the favorable view.

Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.minyanville.com.

Lot's going on today as I juggle the end of June. With time constraints on both sides of this screen in mind, I humbly offer the following thoughts:

• I covered the incremental "fade" exposure in Google (NASDAQ: GOOG) (put out near the opening) and I'm now in watch mode.
  
  
• It's tough to tell how much of the big beta action is quarter-end proppage and how much is legitimate demand. As I covered my American Express (NYSE: AXP) earlier--and continue to have exposure in Wachovia (NYSE: WB)--I'm leaving it on for the time being (and yes, subject to change).
  
  
• And yeah, I'm trading around that ugly duckling--nibbling under $15 and trading the swings. There's no putting lipstick on that pig--using it as my vehicle of choice has thus far been wrong. It ain't over till our interns sing, however, so I'm fighting the good fight.
  
  
• That sorta brings up the question du jour: Are we gonna see quarterly inflows... or quarterly outflows?
  
  
• The upside seems begrudging. Of course, after the decline we've seen, you'd be grudging too if you were Hoofy.
  
  
• Somebody call Armond Goldman! l I'm starting the South Beach Diet on Monday, lest anyone wonders what is happening to my sense of humor.
  
  
• The scariest thing on my screen? The VXO is down 6% today. I repeat, the VXO is down 6% today. Ruh roh...

R.P.

Wachovia (NYSE:WB) is recently down 87c to $15.35. WB call option volume of 56,113 contracts compares to put volume of 37,393 contracts. WB July option implied volatility of 100 is above its 26-week average of 54 according to Track Data, suggesting larger price movement.

Washington Mutual (NYSE:WM) is recently up 20c to $5.00. WM entered into a definite agreement to raise $7 billion through direct sale of securities to TPG Capital and other investors on April 8. WM call option volume of 41,183 contracts compares to put volume of 14,010 contracts. WM July and August option implied volatility of 133 is above its 26-week average of 76 according to Track Data, suggesting larger movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

TheStreet.com's Jim Cramer says with few exceptions, the landscape is littered with corpses.

Sell everything. Nothing's working. Revisit when the prices are adjusted for a big recession, soaring inflation and a crushed consumer. Sell at 12,000 and come back at 10,000. Even better: short it.

Are you going to argue with any of that? Do you have a case against it? What's the counter? Takeovers? We've had a couple: Anheuser-Busch (NYSE: BUD) (Cramer's Take), Wrigley (NYSE: WWY) (Cramer's Take). Good if you owned them.

Lower rates? Can the Fed help? We assume the Fed is done. The odds favor higher rates. Bank turnarounds? How, with short-rates going up? With housing prices going down?

Can oil go down? Only with a worldwide crash, and with a worldwide crash, why would we come back at 10,000?

Can the consumer get more liquid? How? Unemployment's going higher. Wages won't go up in that environment.

That's the environment. It's pretty bulletproof when it comes to its logic.

TheStreet.com's Jim Cramer says a do-nothing Fed signs the death certificate of the banks.

Time for the inflation hawks to recognize the stakes. Throughout the discussion as articulated in the papers and on TV, you hear of only two things with regard to the Fed, that the fundamentals are sound enough to stop cutting and that inflation worries command a shift to higher rates.

In the interest of understanding what has been happening in this market -- an unrelenting decline in all but the oil and fertilizer stocks since the Fed floated this stance -- you have to get your arms around the idea that this is it, an obituary, for all of the banks that need housing prices to increase and bad loans to decrease. Because despite the sound and quite cerebral approach the hawks are taking, unless we get a giant FHA bill out of Congress, you can pretty much be assured that most of the big banks in this country will be so radically under-reserved when they report that we might as well just give up on them.

How about that bill? It seems suddenly likely and it is important, I am not denying it. If we could get the FHA to have $300 billion in lending capacity and we agree that the FHA is basically going to have to take a beating, than you can make a case that we are only about a year away from a turn -- that was the tenor of the CSFB housing upgrade story yesterday, although it didn't rely on the FHA much at all in its prognostications.

MAJOR PAPERS:

• The stock is up 150% over the last year but with its move into the consumer marker BlackBerry maker Research in Motion Limited (NASDAQ: RIMM) is entering the fickle world of consumer trendiness, reported the Wall Street Journal's "Heard on the Street". Analysts are concerned about how big the consumer market can be for them, and then there's Apple Inc (NASDAQ: AAPL) and Nokia Corporation (NYSE: NOK) beating down the consumer path. Smart products will help, but price is an issue, and the shares could face a hard fall.
• The Wall Street Journal reported that Wachovia Corporation (NYSE: WB) acknowledged it has hired The Goldman Sachs Group Inc (NYSE: GS) to study its troubled portfolios of mortgages, a move which many believe indicates the bank is gauging the market value of the loans in order to eventually sell them.

OTHER PAPERS:

• Lazard Ltd (NYSE: LAZ) was hired by UBS AG (NYSE: UBS) to undertake a strategic review of the Swiss bank's businesses, the New York Post learned.
• The New York Post also reported some reported turmoil at Live Nation Inc (NYSE: LYV), following the abrupt departure of the concert promoter's chairman, Michael Cohl. Employees in the unit that was led by Cohl fear that the company will lay some of them off, and CEO Michael Rapino is accused of not being strongly committed to the company's mega-deal strategy.
• The Boston Herald reported that its unions were told the newspaper will lay off 130 to 160 workers, under its new plan to outsource printing operations elsewhere in the state.

TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought.

How bad was that Bear Stearns portfolio? I am beginning to believe that JPMorgan's (NYSE: JPM) (Cramer's Take) buy of Bear is looking like a big mistake. It can only be justified by what might have been an even bigger problem for JPM -- the collapse of the trades that Bear made, which were being processed by JPM's clearing.

We are now beginning to get a real sense of the worthlessness of the mortgage portfolios. Not that we got any help from the SEC, which has taken a "we don't care what's in the mortgages as long as you tell us you have mortgages" attitude. That's been worthless for investors, and maybe even for JPMorgan.

The losses now exceed $400 billion, according to my modeling (if you simply assumed that 50% of the exotic mortgages that were issued from 2005 to 2007 eventually went into default). That's amazing, but it looks like I dramatically underestimated the losses. UNDERESTIMATED!

The most egregious issuers of these exotic mortgages were Bear, Merrill Lynch (NYSE: MER) (Cramer's Take) and Lehman Brothers (NYSE: LEH) (Cramer's Take). I believe that JPM has taken in a huge number of uninsurable, non-hedgeable mortgage instruments that are a pure write-off. And that means they are probably underwater on everything they took in.

Washington Mutual (NYSE: WM) is having such trouble that it will lay-off another 1,200 people.

According to Reuters, "In an e-mail, Washington Mutual said it was cutting jobs that support its home lending unit, centralizing some support functions, and focusing on 'mission-critical activities.'" The announcement was part of a cascade of tough news for financial companies.

Not only have Lehman (NYSE: LEH) and Morgan Stanley (NYSE: MS) posted poor results, but Citigroup (NYSE:C) said its expected more write-offs through the end of the year. The head of hedge fund Paulson & Co. expects total losses at banks to hit $1.3 trillion, with two-thirds of it yet to come.

Short interest in most large financial companies moved up sharply in the period ending June 15. Shares short in Wachovia (NYSE: WB) moved up 26.2 million to 177.4 million. Short interest in Bank of America (NYSE: BAC) jumped 18.2 million to 82.7 million.

Most of this means that bank, brokerage and insurance shares could be much lower at the end of 2008. Many already trade at 52-week lows, but if losses mount, they will have to raise more money, and that means dilution.

Citigroup trades for under $20 in premarket action. As a bellwether for the industry, who would be surprised to see it at $10?

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

Before the bell: Oil, financials woes send futures lower

Minyanville's Sean Udall dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

Earlier in the week, I noted that Goldman Sachs (NYSE: GS) was well positioned to capitalize on what's happening in the financial services space. And nowhere is that becoming more clear than in the advice it's offering and capital raises it's conducting for troubled institutions like Fifth Third Bankcorp (NASDAQ: FITB), Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM).

Like looking to IBM (NYSE: IBM) for your office computer needs in the old days, Goldman is now the obvious choice if you're a bank CEO under siege.

But this may be a short-term benefit for Goldman, as the excessive concentration of business in one firm ultimately puts that firm's whole franchise at risk. If the Goldman brand is to maintain value with investors, it must become increasingly selective as to who it sponsors. But being choosy puts clients at risk.

Position in GS options

Wachovia Corp. (NYSE: WB) is recently up 57 cents to $16.60.

WB call option volume of 24,077 contracts compares to put volume of 38,787 contracts. WB July option implied volatility of 125 is above a level of 75 from June 12 and above its 26-week average of 51 according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Minyanville's wise professor, Mark Bloudek, dares to share the kind of keen insight and actionable information you won't find in any prospectus. For more original thought, visit www.minyanville.com.

I've been doing precious little in this market, but one stock I've been tracking closely is Wachovia Corp. (NYSE: WB). Why would I pay more mind to Wachovia than to other banks? Because it bought Golden West Financial in May of 2006 for $25 billion. And where did Golden West have most of its exposure? That's right, California.

Last night I was looking through the median home price data in the Multiple Listing Service (MLS) in various California cities and noticed some shocking price drops. The median home price offers in San Francisco dropped $10,000 in one week. Ditto for Orange County. In Los Angeles, the figure was a startling $13,000. I went back to check when the market topped in these areas and found that every one of them peaked in -- drum roll, please -- May of 2006.