The other shoe that will drop is now being hidden by relaxation of mark to market rules.
The fundamental flaw or straw that will break the camels back is the fraudelent Derivatives market .History always gives us the answers but we never get it ! A must see are the following 2 videos that explain from EXPERIENCE what is going to happen and why.
See http://www.youtube.com/watch?v=UlDNMB6wYmI
http://www.youtube.com/watch?v=78ddURofMWs
Quick followup in the interest of clarification because I agree with mainecooncat that screaming for no reason is a waste of time…
When I said "nobody knows how bad this is going to get" I meant that. It’s possible to read emotion and hyperbole into that line, but I really just meant what the words say. For example, I wish I could specifically answer Aaron’s question. I can’t. CM can’t. Nobody can to any degree of specificity. My only goal if there is any "doom-ness" to my post is to help people conceive of how big the problem is so they aren’t fooled by small side issues or Bernanke saying we’re fine now…it’s worth pondering the derivatives problem for a while just to let it sink in (we have bets/gambles on our economy that are bigger than the entire economy, and they’re currently enforceable claims!! [exclamation points are an understatement]). This is bigger than anything faced before (fact, not hyperbole), and the result entirely depends on what govt does or doesn’t do. Can’t be predicted. What we do know is CM’s proposition that the next 20 years will be different.
When I said "everybody else will lose everything" if the govt goes along with the system which puts derivatives at the top of the capital structure, I meant "every other corporate institution," not necessarily every individual unless the individual is dependent upon the corporate system or invested entirely in the corporate system. Given current capital structure and the signal given by the AIG bailout, CDS holders have the incentive to push the corporate world into chapter 7, global margin call, liquidating the whole thing rather than allowing chapter 11. Now, I’m sure this won’t be allowed, but it’s the current incentive.
What I meant by "that bad" was a time when some of our underlying assumptions about life will fail and we’ll really feel the impact. The assumptions I mentioned were "blind hope in their current job, their pension plans, their investments, their checking accounts, their grocery stores, gas stations, the water company, etc." So when I said "that bad" I just meant bad enough that some of these things fail, like your local grocery stores have no food, or your bank deposits disappear, or your pension plan cuts benefits 75%. I personally think it’s prudent to insure yourself against such assumptions, while it’s still fine to live by them as long as they last.
When I said "feudalism" I meant neofeudalism. So it won’t be a return to the Dark Ages, but an evolution to something new that reflects the economic/power strata of those times…2 classes…small group of super-rich/powerful and a multitude of "other." But again, this only happens if the govt sticks with the current system and allows the financial industry to basically conduct their margin call. A different version of the same thing could happen if DC conducts a complete power grab and takes over everything. So, I don’t think it will happen completely or permanently. My hope would be that that system breaks down and we become free to evolve back to local communities…would bode well for CM site participants. 
A piece from the UK’s Spectator, Thursday.
http://www.spectator.co.uk/coffeehouse/3509801/browns-illusory-g20-deal.thtml
DavidC
Chris
thank you as always (and to Davos and Erik and everyone elsein the community who has dedicated themselves to this effort)
Joe
hang in there please, we need you! I enjoy your posts very much. With the help of our community(ies) I think, dare I say hope, we should be able to see this through
Jason
This derivatives market has been out there a while, right, I just read a Jim Jubak editorial on JP Morgan’s derivatives exposure in 2002, and he stated the global derivatives market "value" was in the 100 trillion range. The article is oddly prophetic re current banking crisis although I don’t think he realized how bad things really would get. It is an interesting read since he predicted this blowout but did not anticipate it scope (i.e. that all banks would be involved).
http://moneycentral.msn.com/content/P31234.asp
I wish more people understood the extend of the derivatives market (several hundred trillion in bets I think, right?). The public has no idea about this. When I try to tell my friends they think I’m nuts until I show them the charts outlining JP Morgan’s 87 trillion dollar exposure, etc… No major newspaper is going to publicize this data in any real way for fear of causing a panic or upsetting some bankers or politicians. Given how powerful these people are I guess I understand the fear.
I am still hoping the masters of the universe still need us little people to get things done for them
We still have each other thankfully
Regards
Denise
HI to all,
Newbe here but aware (and increasingly better infomed about what is happening).
I am highly sensitive to the armagedon senario and in the process of renegotiating my position. I could do with some advice.
In short i’m Italy based and have a 100k plus home loan that i am renegotiating to about a third of what I am paying now. This should allow the (extended) family to keep a roof over our heads.
I am in no way to pay it off in the near future. Work is precarious. I think that the secod half of the year will see a significant reduction in my earning capacity (our company makes motorcycles) due to the market simply drying up.
first question: Do i go variable at 2.5% today (and for how long) or fixed at around 4.4 to 4.6 %. Will the hyper inflation also mean hyper intrest rates?
Second question: What happens to my loan if the bank (ING) goes belly up? Ar e there ways to protect my self from the eventual consequesnses?
Thanks everyone for your help and the genral quality of the poss.
Ciao,
Mike
Mike: If you go with a variable rate could you re-lock at a fixed rate or refi if your job went away and or you took a pay cut to stay?
for further reading on neofeudalism google michael hudson
It seems to me that this is one more kick at the 1% getting richer before everything crashes down. When they bring in a world currency, they can transfer over their ill-gotten gain and the money is "laundered" A world crash may be planned so everyone willingly accepts a one world economy and currency. Most sovereign nations today would not give up their economies or currency unless it came to a complete crash of world order.