The credit turmoil seems far from over, and the problem goes far beyond the subprime sector. The world is burdened by excessive debt and leverage throughout a large part of the financial system, and the working off of the debt and deleveraging of the system is a highly complex matter that will not only take time, but will result in significant restriction of new credit while this is happening. The process is also likely to result in even more massive write-offs with a further downward drag on the real economy. The enormity and complexity of the problem is well illustrated by just a brief summary of financial headlines over the past week.
>Wave of Write-Offs Rattles Market (last Friday)
>Study Finds Wider Impact Of Mortgage Losses
>Hedge Funds Fire Sales Send Muni-Bond Yields To Historic High Levels
>AIG's Cloak of Invincibility Showing Tears
>Banks Seize Assets of Pelotin Hedge-Fund Firm
>Swiss Re Net Drops 87% On Mortgage-Tied Losses
>Countrywide's Mortgage Woes Deepen
>Small Banks Face Trouble Too
>Commercial Real Estate Might Sting Lenders
>The Latest Casualty Of the Credit Crisis: A Quirky Auction Market For Short-Term Debt
>Mortgage Fallout Exposes Holes In New Bank-Risk Rules
>New Spasm Jolts Credit Markets: Bankers Rattled As Turmoil Returns To Short-Term Loans
>Deleveraging's Vicious Spiral Picks Up Speed
>Thornberg Points To Margin Call Default
>Some Borrowers Hit New Snag On Refinancing
>Carlyle Capital Adds To Fears Of Forced Sales
>KKR Financial Stock Stumbles On Credit, Stock Downgrades
>Moody's Cuts AAA Rating On CIFG
>Alabama County's Sewer-Bond Ratings Are Slashed By S&P
>Housing Market Spirals, No End In Sight: Low Home Equity, Record High Foreclosures: A Limp Housing Market Looks Even Weaker
>Citigroup Will Slash Mortgage Holdings By $45 Billion By Reducing Lending
>Agency Mortgage-Bond Spreads Widen After Markets Become 'Utterly Unhinged'
>Mortgage Foreclosures In U.S. Increase To Record As Homeowners 'Give up'
>Credit Default Swaps Overwhelm Bernanke Ease As Corporate Debt Costs Surge
>Foreclosures Hit Another Record High
>Deleveraging Rolls Into More Markets: Safer Agency Mortgage Securities Hit As Investors Sell To Meet Margin Calls
>U.S. Household Wealth on the Decline
The above headlines illustrate the massive depth and breadth of the credit crisis that is rolling through the financial world and into the economy despite the Herculean efforts by the Fed, Congress and the administration to stem the tide. The major problem is that the usual monetary and fiscal remedies that work in reversing conventional inventory recessions just do not work in the deleveraging of a gigantic credit bubble. That is why so many economists and investors, trained in the recent past, have consistently missed the boat in assessing the impact of the current crisis and its serious ramifications for both the economy and the stock market. In our view the stock market has a long way to go on the downside and will bottom only when the vast majority of of investors throw in the towel and capitulate. 
