Bank Stocks: Time to Buy or Run Screaming?

NEW YORK (TheStreet) -- Every time big bank stocks get socked in the throat, it begs the question of whether to dive in while the getting is good, or run like hell before the mayhem gets worse.

The problem with trying to answer that question, however, is that Wall Street has come down a mild case of schizophrenia when it comes investing in the banks: Everyone is generally bullish about the stocks at these levels but no one is quite sure when the best time to buy them will be, even with second-quarter reporting season, usually a positive catalyst, a little more than a month away.

The recent market rout all began with Goldman Sachs(GS).

The firm has been hit hard in the past several weeks, first by charges of civil fraud from the Securities and Exchange Commission, then embarrassing e-mail disclosures, a criminal investigation from the Justice Department, a public whipping by Congress and a subpoena from the Financial Crisis Inquiry Commission -- all amid ongoing criticism in the press.

If Goldman was a lone populist punching bag, then the problem would be contained, but that isn't the case. Uncle Sam is reportedly investigating the practices of Goldman's white-shoe brethren, too. Meanwhile, a Bloomberg poll released this week shows that it's not just Joe the Plumber who's angry at Goldman; a solid majority of investors and analysts think the firm is getting what it deserves.

>>>What's Goldman's Reputation Really Worth?

Since the SEC charges were first filed, Goldman has lost over one-quarter of its market value as of Wednesday's close. The broader U.S equity indexes have lost less than half that amount. Other banks have gotten clobbered as well, but relatively speaking, a popular bank-stock ETF was down "just" 18%.

As Goldman takes its lashes, the financial reform bill is still being hammered out in Congress, with no shortage of election-day rhetoric in tow. The bill threatens to chop up large banks into smaller, less profitable pieces. All banks could be weighed down by hefty capital requirements, operational restrictions, and fee caps if the Senate's so-called "finreg" measure passes as-is.

>>>The Beginning of the End for Wall Street

Meanwhile, Europe seems to have exploded overnight with a cornucopia of problems. In early May, concern heated up that Greece could potentially default on its debt. Those fears bled over into four other EU countries that were fiscally askew: Portugal, Ireland, Italy and Spain. Hungary was recently added to the list, creating a friendlier acronym of debt-stricken nations: PHIIGS, rather than PIIGS. (More fruit, less succulence.)