This is as serious as it gets(by Noland)

TheCredit meltdown is now moving too fast and furious. Importantly,confidence is faltering for the entire Credit insurance industry,including the mortgage insurers and the financial guarantors. This is adevastating blow for the securitization marketplace, already reelingfrom pricing, liquidity and trust issues. The Credit system has lurchedto the edge of meltdown, while the economy hasn’t even as yet succumbedto recession. It's absolutely scary. Last week I wrote thatsubprime and the SIVs were “peanuts” in comparison to the CDO market.Well, the CDO marketplace is chump change compared to Credit DefaultSwaps and other over-the-counter (OTC) Credit derivatives that, by theway, have never been tested in a Credit or economic downturn. Thescale of the Credit "insurance" problem is astounding. According to theBank of International Settlements, the OTC market for Credit defaultswaps (CDS) jumped from $4.7 TN at the end of 2004 to $22.6 TN to end2006. From the International Swaps and Derivatives Association we knowthat the total notional volume of credit derivatives jumped about 30%during the first half to $45.5 TN. And from the Comptroller of theCurrency, total U.S. commercial bank Credit derivative positionsballooned from $492bn to begin 2003 to $11.8 TN as of this past June.It today goes without saying that this explosion of Credit insuranceoccurred concurrently with the expansion of the riskiest mortgage (andother) lending imaginable. It’s got "counter-party fiasco" written allover it.

Trillions of dollars of "valuation" are at stake here. Mostlybased on whether 13 million homedebtors can continue to make thepayments on rapidly-resetting (upward) mortgage loans collateralizedbyrapidly-depreciating McMansions. Furthermore, thesederivatives have been stuffed into ever-more-concentrated "sausages"called CDOs, CDO-Squareds, Cubed, and other "slicings and dicings". Nowthat the defaults on the ultimate underlying "assets" (see paragraphavbove on homedebtors) are piling up, the cash ain't flowin' like it'ssupposed to, the various instruments are worth what they said they wereand every bagholder on earth just had his portfolio nuked. Littlewonder we are seeing the ABX indices fall apart, the stocks of thecredit insurers collapse, and Wall Street banks in a panic and firingpeople left-and-right and running to the Fed and feds, begging forspecial favors and bailouts. This is as serious as it gets.