So, those tiny bright spots I men­tioned this morn­ing? Not so much.

From Nouriel Roubini, who titles his post “The world is at severe risk of a global sys­temic finan­cial melt­down and a severe global depression”:

The U.S. and advanced economies’ finan­cial sys­tems are now headed towards a near-​term sys­temic finan­cial melt­down as day after day stock mar­kets are in free fall, money mar­kets have shut down while their spreads are sky­rock­et­ing, and credit spreads are surg­ing through the roof. There is now the begin­ning of a gen­er­al­ized run on the bank­ing system of these economies; a col­lapse of the shadow bank­ing system

And from Bloomberg:

U.S. stocks slid and the Dow Jones Indus­trial Aver­age fell below 9,000 for the first time since 2003 as higher bor­row­ing costs and slower con­sumer spend­ing spurred con­cern car­mak­ers, insur­ers and energy com­pa­nies will be the next vic­tims of the credit crisis…

“People have lost faith in everything,” said Philip Orlando, who helps manage $350 bil­lion as chief equity market strate­gist at Fed­er­ated Investors Inc. in New York. “We’re deal­ing with an invest­ment com­mu­nity of athe­ists right now. Val­u­a­tions no longer matter.”

And, to stay on the reli­gious theme, from John Jansen:

We are in the midst of an unfold­ing deba­cle. It is hap­pen­ing about us. I am not sure how or when it ends, but the end, when it arrives, will rad­i­cally alter the way we live for a long time.

Who­ever wins the US elec­tion and takes office in Jan­u­ary will need prayers and divine intervention.

All of these are cour­tesy, as ever, of Yves Smith (who is really start­ing to scare the ever-​loving shit out of me, even though she’s just report­ing the news of the day). She expects tomor­row will tell us a lot about just how deep a cesspool we’re swim­ming in, because it’s the day that the credit default swaps on Lehman will be set­tled. (Remem­ber, a credit default swap is like an insur­ance policy on some bit of debt, a way to pro­tect your­self if the com­pany who bor­rows your money goes broke, as Lehman did.) Accord­ing to the Wall Street Jour­nal, there is about $400 bil­lion worth of pro­tec­tion on Lehman debt out there. “This Lehman credit default swaps set­tle­ment auc­tion will likely be one of the most expen­sive pay­outs in the his­tory of that market, some­thing the gov­ern­ment is cer­tainly keep­ing an eye on.”

If every­one did what they were sup­posed to and hedged their Lehman CDS posi­tions prop­erly, and then things might ease a little next week. If not, there could be even more trou­ble. Reuters reports that the sell­ers of Lehman CDS’s (i.e. the insur­ers) are expected to lose 90% of the value of the out­stand­ing debt. (In very basic terms, what this means is if you hold $10 worth of Lehman debt, and you bought a CDS from me to pro­tect it, I would pay you $10 and I would get your defaulted bond worth $1.) So on top of the losses the banks are already facing from their bad mortgage-​based assets, they could be look­ing at paying out a whole lot of money that they just don’t have.