What the big banks aren't telling you -- yet

With credit markets still largely frozen, unemployment rising and major corporate expenditures slowing to a halt, every indication suggests that a surprising number of major financial firms, including Wachovia (WB, news, msgs), Washington Mutual (WM, news, msgs) and Bank of America (BAC, news, msgs), will come up short of expectations in October, kicking off an unpleasant autumn for investors.

Investors need to care more about financial stocks than any others because they make up more than 20% of the broad market indexes. So let's get some clarity on exactly what they're facing.

At the moment, the estimated growth rate for all S&P 500 Index ($INX) companies in the third quarter is clocking in at 5.1%. That's down sharply from the 6.2% growth rate estimated two months ago and half last year's growth rate. The funny thing is that most of those downward revisions of estimates have come in the industrial, consumer staples and retail sectors of the economy. Yet the financial industry, which has undoubtedly experienced the worst business shortfall, has barely received any material earnings-estimate cuts yet.

You could see that as great news if you're a glass-is-half-full kind of person. But it could also be interpreted as absolutely nuts. At the moment, I am inclined toward the latter and think it's emblematic of an entire industry that is whistling past the graveyard. Bank and brokerage chief executives such as Jimmy Cayne at Bear Stearns (BSC, news, msgs) and Ken Thompson at Wachovia appear to have mesmerized industry analysts into a state of total denial. Or it could be they've had their mouths taped shut by attorneys afraid that any premature announcements, positive or negative, might get them into trouble with securities regulators and plaintiff lawyers now studying their loan books for misdeeds.