Sovereign Society’s investment director Eric Roseman says he would rather hold investment-grade corporate debt than Treasury bonds. The yield in the corporate debt market is at a multi-year high and can be easily accessed via low-cost ETFs. But Eric says it is wise to avoid financial firms, as more trouble lies in store for this sector.

The New York Times says the recovery from the U.S. housing crisis will be “painful and protracted”. The Daily Reckoning editor Bill Bonner says this is a good thing for the nation. It might prevent the same mistakes being made again. The last few decades have been built around consumption, which went way beyond income thanks to the irresponsible lending from banks.

It seems we are not the only ones frustrated with the Fed. Former Bank of England economist Willen Buiter has criticized Bernanke & Co. for bowing to the demands of Wall Street. Dan Denning in The Daily Reckoning Australia says the Fed’s policy is just delaying the inevitable backlash from years of misallocated capital…

“The U.S. banking system is in trouble,” wrote John Maudlin last Friday.

Maudlin said the problem goes far beyond GSEs Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE). He also predicted that “we will have to deal with the aftermath of a rather large number of bank failures over the next year, which is likely to overwhelm the ability of the FDIC to insure your bank deposits.”

Later that day, Reuters reported that small Kansas bank Columbian Bank and Trust Company had become the ninth U.S. bank to fail this year as the weakening economy and falling home prices take thei toll on financial institutions…

There is still a short investment opportunity in the banking sector. The Daily Reckoning’s Dan Denning thinks that if Lehman Brothers (NYSE: LEH) were human, it would be selling vital organs by now. That’s how desperate the bank is to raise cash before it adds to its $12 billion in reported losses. But there is a reason why most bodily organs are considered vital, and Dan says we could see a few more corpses on Wall Street before this crisis is over…

Dave Gonigam discusses the Fed’s efforts to protect Lehman Brothers (LEH) in The Daily Reckoning’s Desidooru Saloon blog. It is a sign of the current fragility of the banking sector that the Fed is now ready to step in to quash any unfavourable rumours that could cause a run in the stock market. And some rumours are truer than others…

The Daily Reckoning’s Mogambo Guru is astonished that the dollar is rallying. He says the S&P500 and Dow Jones Industrial Average Indexes are grossly overvalued, the banking system is leveraged to preposterous levels, and the FDIC insurance fund is negligible compared to total bank deposits it is supposed to cover. Mogambo says all of these things strengthen his case for buying gold, silver and oil now…

In April, Treasury Secretary Hank Paulson called the bottom in the financial sector. He said: “I think were closer to the end of the [credit crisis] than we are to the beginning.

“The Rude Awakening’s editorial director Eric Fry thinks Hank was way off the mark. Eric says financial stocks will by a buy one day, but he doesn’t believe we are looking at a bottom now.

In the second part of The End of Peak Greed, Eric says investors are better off putting their money into companies that are making the world go around than betting on financials, which are sending it not a tailspin.

The Era of Peak Greed is over. The Era of Caution is upon us. The Rude Awakening’s editorial director Eric Fry, says the credit crisis has taught investors important lessons. Like how to avoid excessive risk. This is why Eric advises readers to stay away from bottom fishing in the financial sector. There’s too much complexity. Sell risk, buy caution. Sell complexity, buy simplicity, says Eric…

Whiskey and Gunpowder editor Dan Amoss says the recent rally in financial stocks has more to do with short covering than regular buying.

Weak institutions were shorted so much that a bounce was inevitable.

Despite an SEC clampdown on shorting, Dan says legitimate shorting is vital for the stock market and is not to blame for the stategic mistakes of U.S. banks.

For those still looking for new short ideas in the sector, Dan says Allied Capital (NYSE:ALD) is a good place to start…