The financial markets have suffered a significant setback after more than $500 billion in value was destroyed as a result of the mortgage and credit market declines. Losses from subprime, near-prime, prime morgages, CDOs, CLOs, failed LBOs, auto loans, credit cards, and other consumer credit, commercial real estate loans, asset backed securities, and other significant financial losses have sent the USA and other markets into a decline. The subprime losses alone are expected to lead to nearly $238 billion in value being destroyed.

The stock markets are declining so rapidly because not all of these losses are marked to market yet. This means that companies have not yet posted the losses realized from these declines by updating the estimated value of their portfolios. For example, if a company purchases a $100 billion subprime portfolio in 1999, they are not required to update the value of the portfolio in realtime. Rather, they get to do it quarterly or even yearly. Compounding the problem is the fact that many of these securities are so complex that they become almost impossible to value. After all, we have seen many financial institutions suggest losses would be limited only to turn around and post larger losses. This has only compounded the fears.

So, if you are concerned by your declining 401k or stock portfolios, know that this problem may be here for some time and it may be best just to ride it out.