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Banking's loneliest defender

October 13, 2011: 9:27 AM ET

Bank analyst Dick Bove is very angry, and very afraid. But don't ask him to blame the financial institutions for his ire.

FORTUNE -- For a man with a fairly genial demeanor, Dick Bove has been dishing out a lot of vitriol in recent weeks. The targets of his ire have been wide-ranging: President Obama, Senator Dick Durbin, former TARP cop Neil Barofsky, former FDIC chief Sheila Bair, and even Goldman Sachs chief Lloyd Blankfein.

Bove, an equity analyst at Rochdale Securities who became prominent during the depths of the financial crisis, is a stock picker by occupation. But take a measure of his recent research, and you will note that an increasing proportion of it has nothing to do with specific stocks. With titles like The Desire to Harm Banks is Increasing, The Durbin Scam, and The Government Broke the System, his writings show just what he has become: a vociferous -- and lonely -- defender of an industry that it has become very fashionable to hate.

"In all the years I've been doing this, I've never really gotten angry at something the government has done or something that has happened," he says. "You can get angry if someone cheats, of course. But now I'm getting mad, and that's leaching into the things that I write. I would never have written 20 years ago that a U.S. senator had committed a fraud on the American public. And in searching out why I'm so mad, I realize that it's because I'm afraid. We're moving in a direction that is extremely harmful to the economy and the American public."

The primary issue that keeps Bove up writing angry missives at night is what he sees as the mistaken belief that blame for the financial crisis should be laid squarely at the feet of financial companies, and no one else. "There's a template for how these crises play out, time and time again," he says. "You start with a savings glut somewhere in the global economy. That money needs to be invested somewhere. And if the economy isn't growing fast enough to provide valid places to invest, it will eventually migrate into weaker and weaker investments."

He's just warming up. "Sure, there was no lack of people or institutions that created the questionable investments we're now all-too-familiar with -- the CDOs and whatnot from the real estate boom -- but Wall Street is supposed to move funds from the holders to the users of funds. People complain that they haven't been punished. But there is no more Bear Stearns. There's no more Lehman Brothers. There's no more Merrill Lynch. All the guys who ran these places are gone. There are only two people left on Wall Street: Lloyd Blankfein and Jamie Dimon."

The real problem, argues Bove, is that the country's economic engine is kaput. Rebuild our ability to actually make things, he says, and you can start to stabilize the trade deficit. By creating jobs in the process, the country might stand a chance to reverse the terrifying increase in the number of people falling below the poverty line. "Occupy Wall Street is real," he says. "While Congress plays its games, it has forgotten that the suffering in this country is staggering—21 million people are unemployed or underemployed. It's outrageous that we put trillions into Afghanistan when people in this country can't even get work. Instead, people like President Obama are harping on about Wall Street. They are inciting people to riot. And they will."

Bove agrees with Jamie Dimon's position that the push for ever-higher capital buffers at the nation's banks is strangling the U.S. financial system's ability to do its job, which is to make loans. "Think of it like an oil well," he says. "Oil producers send their product to refineries to turn it into some fuel product, like gasoline. Well, in this case, the Federal Reserve is the oil well. There's a gusher at that wellhead—they're printing money like crazy. But banks—which are the refineries—are unable to convert the gusher into loans to assist the growth of the economy. The system is broken. There are $1.6 trillion in so-called 'net free reserves' at the Fed. That's over 1,000 times greater than it's ever been before. And that's not the fault of the banks. It's the fault of the government."

Whose fault, precisely? Bove says there's blame to spare. "Greenspan loved monetary policy, but was bored by regulation," he says. "Sheila Bair didn't do anything about auditing the banks she was supposed to oversee before it was too late. Congress and the President wanted growth at the time, so they told regulators to back off. And we got what we got, which was greed running rampant on Wall Street. The answer to that isn't a whole new series of laws. It's executing the laws that were there in the first place. And we didn't do that."

And don't even get him started on the New York Attorney General's office. "The last three AGs in New York—Eric Schneiderman, Andrew Cuomo, and Eliot Spitzer—have made their primary goal attacking the financial industry. Drug dealers are safer in that town than bankers are. Does the attorney general of Texas attack the oil industry? Does the AG of California try to put Hollywood out of business? Cars in Detroit? No, they're not that stupid. Now they're suing Bank of New York (BK), with the result that they're pulling jobs out of New York as fast as it can. Goldman (GS) is moving to New Jersey and Utah. Citigroup (C) is going anywhere it can find outside New York. JPMorgan Chase (JPM) is the only bank putting jobs in the U.S. and everyone flips out because Jamie says he's not sure we're taking the right approach to fixing the system? People are electing people who want to fire their neighbors. It just doesn't compute for me."

So, Dick Bove, what about doing your job, and giving us a few stock picks? At this point, the tension bleeds out of the conversation. "Most bank stocks in this country are mind-bogglingly cheap," he says. "They have more cash than their book value and more book value than their market capitalization. That's an inverted pyramid. It's upside down. That says that people believe that there's no value in the cash held by banks. And that's just wrong." Specifically, Bove recommends JP Morgan, Morgan Stanley (MS), and U.S. Bancorp (USB).

When the topic turns to Bank of America (BAC) and the $5 debit charge controversy, his dander goes right back up again. "Dick Durbin gets up on the floor of the U.S. Senate and encourages a run on Bank of America? How can a U.S. senator say that we should bankrupt the biggest bank in the U.S? Has he lost his mind?"

Dick Bove, people. He's mad as hell, and he's not just a stock picker anymore.

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About This Author
Duff McDonald
Duff McDonald
Contributing Editor, Fortune

Duff McDonald is a contributing editor at Fortune. He has also written for New York, Vanity Fair, Condé Nast Portfolio, GQ, WIRED, Time, Newsweek, and others. In 2004, he was the recipient of two Canadian National Magazine Awards -- best business story (gold) and best investigative reporting (silver) -- for "Conrad's Fall" in National Post Business. Last Man Standing, his biography of Jamie Dimon, chairman and CEO of JPMorgan Chase, was published by Simon & Schuster in October 2009. He is also the co-author, with Owen Burke, of The CEO, a satire.

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