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I. I call it Smoke. What is it really and how do you get your arms around it to properly value it? The smoke is the total value of the world market for Derivatives, CDOs and Sub Prime Mortgages.

Estimated at $415 trillion by the Bank of International Settlements.

Less than 9% is traded on regulated exchanges, the rest is handled one on one, over the counter, outside of a regulated exchange. Institutions, especially the foreign banks who bought this smoke, relied on Moodys and Standards and Poors to value it. All of these are required to be Marked to Market, or otherwise be fairly valued.

There is a huge percent of these derivatives that should be valued at zero or at least much less than their current market value because there are no or few buyers of these instrument any more. As banks announce quarterly and annual earnings they are required to mark to market these derivatives. If they have to mark down the value of these derivatives, then they will have to sell all other assets of values (such as stocks, gold, bonds etc) to cover the shortfall of these devalued instruments that were used to collateralize their loans.

When people see huge losses in their portfolios, lawsuits will ensue and some of these wall street CEO's will go to jail.

According to the Bank of International Settlements, Five Banks control 97.1% of the derivatives in the US market.

a. JP Morgan Chase $8 in credit risk for each dollar of capital.

b. HSBC $5.70 in credit risk for each dollar of capital.

c. Citibank $2 in credit risk for each dollar of capital.

d. Bank of America $1 in credit risk for each dollar of capital.

e. Wachovia $2 in credit risk for each dollar of capital.

II. Federal Debt - central bankers keep increasing debt on our government's general ledger, they print dollars like it is monopoly money and tax payers don't have a say.

The U.S. Federal Government IS Broke! The total federal debt stands at $8,900,000,000.00. That's $8.9 TRILLION. Put another way, every man, woman and child in the U.S owes $29,672.26! Not counted in these numbers are future social security payments, Medicare, and government pensions. This adds up quick, we are approaching $55 TRILLION when you consider the entitlement programs.

Just ask the Comptroller for the United States of America. His name is David Walker. Mr. Walker keeps the books for the USA. He has been touring around the USA going to the Universities to tell the college kids, so they can wake up to the problem they are enheriting. He tried the politicians and they have not listened. Just go to The Comptrollers website and read his wakeup speeches or attend his lectures. http://www.gao.gov/cghome.htm

III. Personal Debt - The average American citizen is dealing with a lot of debt right now. The average U.S. household owes $112,043 for mortgages, credit cards, car loans, and all other debt. Meanwhile, the average personal savings rate is a mere 0.6%.

The debts will overpower the assets as real estate values decline, and a wave of incredible home foreclosures and personal bankruptcies will come crashing down over their heads. They estimate we will see more foreclosures in just the first half of 2008 than we have seen in all of 2007.

IV. Private Equity Buyouts - Simple formula to increase stock prices. Buy a good company, cut the headcount or fire a large number of seasoned, experienced employees to reduce costs and inflate net income/earnings. Load the company up with debt. Debt becomes leverage, as earnings increase on a leveraged company the P/E ratio rises faster than a non-leveraged firm. Wall street falls in love with the higher P/E ratio and the stock price goes up.

This is what has been happening in the stock market. Then the Private Equity firm sells the company back and the company is still the same but has more debt, less employees and a higher stock price.

All is fine, if the economy expands and the people let go were really not needed. However, in a slowing economy, earnings will decline and the leverage has an opposite impact on the P/E ratio. As earnings decrease the P/E ratio drops more dramatically and the stock values drop significantly more than a less leveraged (or debt saddled company.)