December 5, 2007 (LPAC)--THIS "FINANCIAL HOUSE OF CARDS . . . IS ABOUT TO COME CRASHING DOWN," reporter Steven Pearlstein said in today's Washington Post. Despite the "bursting of the biggest credit bubble the world has ever seen," he said, "let me assure you, you ain't seen nothing, yet." "This isn't just a mortgage or housing crisis," he said. "The financial giants that originated, packaged, rated and insured all those sub-prime mortgages were the same ones, run by the same executives, with the same fee incentives, using the same financial technologies and risk-management systems, who originated, packaged, rated and insured home-equity loans, commercial real estate loans, credit card loans and loans to finance corporate buyouts. It is highly unlikely that these organizations did a significantly better job with those other lines of business than they did with mortgages."

Pearlstein identified the role in "this still unfolding disaster" of Collateralized Debt Obligations, or CDOs to create high-rated bonds out of junk. "It was a marvelous piece of financial alchemy, one that made Wall Street banks and the ratings agencies billions of dollars in fees. And because so much borrowed money was used -- in buying the original mortgages, buying the tranches for the CDOs and then in buying the tranches of the CDOs -- the whole thing was so highly leveraged that the returns, at least on paper, were very attractive." Now the whole "house of cards" is "about to come crashing down, with serious consequences not only for banks and investors but for the economy as a whole," he said.

These are some useful concepts to have in the Washington Post, which is read by all the major players in the nation's capital. Given that Pearlstein opened his article with a famous quote from Charles Mackay that men go mad in herds but only come to their senses one by one, perhaps some of his illusions are being shattered.