"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey

Whenever Wall Street begins to tout something as unbelievably bullish, or unbearably bearish, I begin to have serious doubts.

As an example, a few months ago CNBC's Erin Burnett was reporting- "Move over Goldilocks- here comes Economic Nirvana." Here are a few other media phrases that signal a market top;

- The Goldilocks Economy
- Soft Landing
- The Resilient Consumer
- "Points above new all-time high" on your TV screen.
- Valuation models suggest stocks are too cheap to pass up at these levels.

Now, either these people are hype masters, or stupid and dead wrong about the economy and the stock market.

This being said, is the Financial Crisis as Dire as They Say? I have serious doubts.

Sure, lenders did some stupid things. I heard about a 24 year old who was offered numerous credit cards by mail with credit limits of $5000-$7000 each. The guy had a part time job, partied every night, was irresponsible, and got bad grades. Any credit card company that issues credit to someone this irresponsible deserves to not get paid back. They are idiots!

When you consider mortgage loans, and the write downs taken by the banks, not every loan they wrote off was bad. In the months and years ahead watch for the banks to begin adding some of those written down assets back to their balance sheets.

Consider this;

1) Most Foreclosed Properties will Eventually be Sold to Someone

Let's assume a bank writes off a $200,000 loan in foreclosure. In the weeks and months ahead, someone will buy the property, and the bank will recover 60, 70, 80, or maybe 100% of the loan. In other words, the $200,000 original loan is not a total loss.

2) Many Derivatives are Worth Something if held to Maturity

Derivatives are scaring the heck out of many investors, but losses or profits can occur if not held to maturity.

You may not believe this, but a Zero Coupon U.S. Treasury can be classified as a derivative. So can a CD (Certificate of Deposit), which explains why you will incur a penalty on a CD if you cash it in before maturity.

A derivative is defined as "a financial contract whose value derives from the value of underlying stocks, bonds, currencies, commodities, etc". You know what a CD or bond is worth when you bought it, you know how much it will be worth when it matures, but in the interim it will fluctuate in value (more or less than you paid for it) until maturity.

When you understand the definition above, you realize a Zero Coupon U.S. Treasury Bond and a CD's can be classified as a derivative.

This being said, a CMO's (Collateralized Mortgage Obligation), CDO's (Collateralized Debt Obligation), and SIV's (Structured Investment Vehicle) are also derivatives.

What has created havoc in the market place, and massive losses for banks is the market for trading these vehicles have all but shut down. This does not mean that the value of these products are worthless, but it does mean that at this point and time the values of these products (should one try and sell) have declined dramatically because there is no market.

In addition, banks and other financial institutions have to abide by the GAAP accounting laws, which calls for these products to be repriced at their current market values, and currently there is no market for these products. As a result, any bank or financial institution holding these products have had to write down or write off these products at a loss.

One day, the primary and secondary markets for these products will return. When they do, some of the CMO's (Collateralized Mortgage Obligation), CDO's (Collateralized Debt Obligation), and SIV's (Structured Investment Vehicle) that were written off as total losses will be worth something. As a result, banks and financial institutions that wrote these assets off as losses will be able to add the recoverable amounts back to their balance sheets.

I don't know if the financials have bottomed or not. What I do know is during periods of extreme pessimism and mass panic, the sector in question always over shoots on the downside. Now that most analysts are negative on the group, and the financial commentators are negative as well, we can assume the financial crisis may not be as dire as they say.