Unless the US intervention invalidates insurance contracts that bear no relation to owned risk, the contributions by the taxpayer will be swallowed up feeding those derivatives. It is feeding the disaster.

Hedge funds are dumping virtually the rest of the world to protect core US positions. It means the rest of the world is on sale, and we should even see further losses below fundamental value in Europe and Japan. The bet is that they have made money from stupid US consumers, and those consumers, while still stupid, won't be able to spend as freely.

Deflationary expectations are everywhere, with a kicker. Everyone believes that if the economy gets going again, that oil goes back up fast. This means that unlike an ordinary time, when deflation and inflation have different strategies, now the have one strategy: stay liquid.

1. Lack of clarity about what is actually happening. No one really knows the economic state of affairs because of lack of transparency and fixing of government economic reports.

2. Market sentiment. Market sentiment is now confused. There is fear and at times panic, but at the same time, the perception remains that things will blow over and the economy will return to "normal," i.e., the status quo ante. This is unlikely to happen considering that we are in the biggest credit bust the world has witnessed, so it is a matter of time before the sentiment adjusts in that direction.

3. Deleveraging. As the credit bust unfolds, more and more positions unwind, involving trillions of dollars, yen, etc. So far, the delevering has hit the financial community, except for some mortgage foreclosures. However, the consumer stage of delevering is coming as unemployment increases and people get underwater on consumer debt in addition to home mortgages, such as equity lines, auto loans and credit cards.

4. Government intervention. The same people that made the mistakes that got us into this mess are now using powerful tools to broadly intervene in the financial markets to "save them," i.e., save themselves and their friends at taxpayer expense. It's becoming clear how that is working out.

5. Change in administrations. The current administration has been completely discredited, but the new administration is not in place and there is no indication as to its direction yet, further compounding uncertainty.

6. Liquidity preference. Financial institutions have been preferring liquidity for some time, creating a liquidity trap in which liquidity injected by the government is not used to extend credit. That preference for liquidity is spreading. Given the level of uncertainty, many people are preferring liquidity to risk, increasing redemptions and adding selling pressure.

7. Looming increase in national debt. Proliferation of government programs aimed at intervention are promising to expand the national debt by several trillion dollars, creating pressure on the dollar as well as the expectation of future inflation and rise of interest rates.

8. Repricing risk. Spreads between government and corporate debt continue to widen, as well as spread between low and high risk in general.

9. Lower government revenue. Contracting economy implies lower state and federal tax receipts. States are already cutting back or having to borrow as a result of lower revenues. In addition, the muni markets has been effectively wiped out.

10. Call for increased regulation and oversight. These is fear that the impetus toward increased regulation and oversight will produce legislation that will overshoot the mark and be restrictive.