I want to touch on the subject of Credit Default Swaps.  I talked about those beasts previously.  Today's Wall Street Journal has an article on the topic.  Here's an excerpt.

Lingering hopes that the damage could be contained to a handful of financial institutions that made bad bets on mortgages have evaporated. New fault lines are emerging beyond the original problem -- troubled subprime mortgages -- in areas like credit-default swaps, the credit insurance contracts sold by American International Group Inc. and others. There's also a growing sense of wariness about the health of trading partners."

My opinion is that, if you are an investor in common stocks, it's worth while getting versed in Credit Default Swaps and synthetic Collateralized Debt Obligations.  The problem we're facing is being driven by these animals and it could be very serious.  The Credit Default Swap market is estimated to be $65 trillion; it's unregulated and no fiscal power on Earth has the strength to fix the issue if it starts to unwind.  I's suggest you take the chance to read The Trillion Dollar Meltdown by Charles Morris.

I think the bizarre behavior in pricing that we're seeing right now is probably tied, in some measure, to liquidity issues.  There derivative instruments, which gave excellent returns in the past, are hovering in the background with the potential to do damage.  I hope I am wrong.  If I am not, I hope that the central bankers of the planet caucus and decide on some concerted dramatic effort to right the financial markets immediately before they slide into more turmoil! The credit markets have started to seize up and, quite frankly, the entire globla banking system could simply grind to a halt up as soon as tomorrow.