The sub-prime mortgage mess is not new news. It was a big concern this summer when the Dow was over 14K.  The woes of the economy have to do with it in name only. The sharp increases in oil, corn, milk, the first panic over sub-prime, the "confidence" write downs in response, and more investment panic have been the cause of any wobble in everything from banks to bananas.

Most market movement has some larger engineering to it.

The hand of the sheiks of OPEC and the large oil companies  was all over the oil run-up.  With Bush in the White House, their lil buddy, very little was going to be done to stop them.

Likewise, if you consider the situation calmly for a moment, the hand of some agents within the financial industry can be seen in the subprime mess.

Who benefits from turning the investment herd into a stampede over the cliff, and sets off solutions to the problem to their own benefit?  The financials, particularly the larger banks and brokerage houses.

Consider this: 96% of mortgages are still being paid on time. Durable goods orders, even with all of the market flux, are up. The jobless rate is still at near-historic lows, and nowhere near the triggers needed for a recession. 

Yet the histrionic war whoop from the Can't Believe (their) News Channel (CNBC), and other financial publications has been epic. A Citigroup analyst and the New York Times even published  a "run on the bank" in reference to E*Trade, which was wholly irresponsible and nearly caused that firm's collapse.  Countrywide was scooped up by BofA when, in other times, it might have simply managed to continue operating, much as 98% of the other firms with similar sub-prime issues would have, because it became the sub-prime lightning rod and the stock went out of control.  With $2B invested, maintaining the stream of bad news was much easier than bailing the company out, because BofA benefits hugely from assuming a $15-18 a share mortgage servicing arm plus much more minimal defaults than the doom and gloomers are shouting from the rafters, and all for the bargain price of $7.00/share.

What put these forces into motion? The same banks and brokerages that have the problem.

Why?

To move large segments of the market into line to eliminate the problem and get these same institutions healthy, fast.

Where do nervous people go, or, more aptly, where does the media help stampede them?

Banks.

Right now, with the inflation rate hovering around 3%, your 4.17% CD might make you 1.17% in real terms. Of course since the IRS will tax you on the 4.17, it means that you're actually losing money. But hey, you FEEL safe, right?

Banks bilk billions out of nervous little investors when the get them to run out of the big-bad stock market, or bonds, where they have to pay substantially more for your money.

The banks also pushed the Fed into lowering interest rates. Two-prong effect: Lower interest rates mean a land-office business in refinancing homes, both to get the lower rates and to get out of crappy ARMs.

Yessir, it's loot and pillage time in the big banks and brokers. You can get much better returns, not to mention some very sweet capital appreciation, off of many, many stocks paying 5% or higher dividends right now. There are many great dividend-paying stocks in great companies.

This instability will calm down as the banks bother to quanitfy what they hold. Look to see many of the write-downs, unless there is a calamity in the market, have to be repatriated because SURPRISE, they're really not bad debt. 

Unless your cracked crystal ball says that there will never be another up cycle, something which all history and any analyst worth their salt will tell you is nonsense, and you can lift your worried little nose up above next week and look out into 2010 or 2012, when the dips happen, buy what you can!

Someone other than the big banks should be able to cash in on all of this man-made misery.