A generation lived through the Roaring 20's and the Great Depression, and then told their kids and grandkids about it. What stories will we have?

I've got a feeling we'll be telling HousingPANIC stories for years and years and years to come, until we kick the bucket.

"Tell me about SIV's granddaddy! Tell me about CDO's! Tell me about Angelo Mozilo, and Bob Toll and that idiot George Bush!

Tell us about the credit cards and wild parties! Tell us about Paris Hilton! Tell me how Senator Serin got his start!

Tell me about the dollar before they got rid of it! Tell me about that ghost-town, Chandler, Arizona! Tell me about those condos they bulldozed in Miami!"

Oh, the stories we will tell...

I will say this - as a social psychology experiment, it will be interesting when the banks, pension funds and hedge funds begin to fail

Here's an article today in the Financial Times that pretty much puts a dagger in the heart of any "analyst" who is stupid enough to think the housing crash and Great Credit Unwinding were going to end after only a few days.

We're just getting started. Here come the hedge fund, pension fund and bank failures, whether they know it or not.

Liquidity underthreat as banks' capital is about to be slashed

The bright, liquidity-driven prospects for the stock market, versus the hard landing for the US economy, have been a puzzle all year. Prolonged weakness in the economy without some stock market weakness would be odd. Yet the implication of a hard landing, lower interest rates, has even boosted stock prices, given the predominance of debt-driven private buy-outs in setting prices.

The Bear Stearns hedge fund fiasco removes the paradox. Banks' capital is about to be slashed, and with it excess liquidity in the global system.

Look at mortgage-backed collateralised debt obligations -- pools of debt assets, in which investors take stakes with different levels of risk. Suppose those held by banks were valued at "market" rather than "model" levels (a fancy new euphemism for illusionary historic book values). Their capital would turn out to be lower. Preservation of capital ratios against loans would require fewer loans: liquidity would have imploded.

A bunch of hedge funds may have problems, but that is the tip of the iceberg for "Titanic" Wall Street. Who holds the toxic tranches? Answer: the originating banks and syndicating investment banks for the most part.

With this mortgage-backed crisis we could simultaneously see market-price liquidity implode just as banks are forced to shrink their books by capital losses. It was always likely that the chief source of problems (as in any downswing) would be the chief area of excess in the previous boom - in this case the mortgage market and mortgage-backed securities.