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Monday has brought out the shoe-drop analogies. Richard Bernstein, chief investment strategist at Merrill Lynch, put it this way: "Another 'shoe has dropped' in the ongoing global credit crisis," he said in a note. "Unfortunately, it is a big closet. More 'shoes' are yet to come."

The shoes, of course, are failing financial firms, from small regional banks to once-giant investment banks and brokerage firms. Lehman Brothers Holdings Inc. joined the shoe-list on the weekend after it filed for bankruptcy. Judging from American International Group Inc.'s plunging share price (down more than 46 per cent on Monday), some investors are betting that it could be next.

The Federal Deposit Insurance Corp. believes the current shakeout in the financial sector could see 100 banks and thrifts shut down. However, Mr. Bernstein believes that is an underestimate: His early analysis suggested the number would be over 250 over the next 12 months or so, and other analysis suggested that several hundred firms could close over the next several years. In other words, you might want to forget about investing in the sector on the cheap right now.

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"We think the risk premiums on these shares are likely to rise as investors realize that the government will not bail out private institutions, and as there are only a limited number of potential acquirers," Mr. Bernstein said.

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