The third and most devastating leg of the great American meltdown of 2009 is the derivatives leg which reveals trillions of dollars of unsecured debt and credit default swaps which cannot be covered and has ushered in the PANIC phase of our economic collapse: Allen L Roland

The first leg in the great bear market of 2008/09 was the sub prime mortgage debacle which led to the current credit card crisis leg, which is still adding tremendous pressure to mainstream banks, but the final leg is the derivative leg which represents trillions of dollars of unregulated credit default  swaps and unsecured debt which can not possibly be covered. It is truly the 900 pound gorilla in the room that no one wants to acknowledge but everyone, including Washington, is petrified of. See The unspoken cause of the Stock Market collapse is derivative trading !  http://blogs.salon.com/0002255/2008/10/13.html 

AIG's reported loss of 62 billion dollars yesterday, the biggest quarterly loss in Corporate history, after an infusion of a $60 billion dollar bailout loan, a $40 billion purchase of preferred shares, $40 billion to soak up its toxic assets and another $30 billion on top of that ~ is all related to derivative contracts. AIG has used derivative contracts to guarantee complex debt securities on the books of many shaky financial institutions. If AIG defaults on its debt ~ which is now a staggering $180 billion ( equivalent to nearly half the U.S. government’s entire budget deficit for all of 2008 ) the whole financial system would crumble so the Fed agrees to another $30 Billion bailout and delays the inevitable shake out. 

As an aside, it would take a person spending $1 million per day, every day, the next 169 years to spend as much money as AIG lost ( $62 Billion ) during the fourth quarter ~ which lasted just 92 days.

And why do you think that Warren Buffet recently said " The economy will be in shambles throughout 2009 ~ and, for that matter, probably well beyond " ~ because Business was bad across the board for Buffet. Berkshire Hathaway got pounded by $4.61 billion of losses on 251 derivative contracts. The result: Berkshire Hathaway's stock tumbled 44 percent in the last 12 months.

Wall Street is not fooled or wishful thinking ~ the stock market free fell another 299 points to 6763 yesterday ~   dropping below 7000 for the first time since 1997 and a rally attempt quickly fizzled today.    

So here's the Grim reality ( according to Martin Weiss who has been on the mark for well over two years and says we are now in the PANIC PHASE of the economic collapse)  

In 2009, the White House predicts the economy (GDP) will contract by a meager 1.2 percent, while private economists predict a decline of only 2.0 percent.  

The grim reality: