Rewind to the end of last year when the subprime mortgage crisis was just starting to rear its ugly head. The CNBC and Bloomberg announcers were all touting the financial companies and their decision to get the credit writedowns out of the way. The word was that these massive consumer and investment banks wanted to get all the negative out of the way so they could move on. This sounded great, and wall street even bought into it for a while. So where did this go wrong?

First of all it seems that the sheer magnitude of the pain was underestimated. Many in the financial world thought that this was contained to subprime mortgages, and that it wouldn't effect the higher quality products. That turned out to be dead wrong. Sure the subprime markets are still the ones that have suffered the most, but there is no denying that the pain has spread to much higher quality products. Second, the length of the pain was underestimated. Last year many were already predicting a bottom and a slight turnaround, which has yet to come. Thirdly, and most importantly, the marked to market model has been hurt by prices conitinuing to plunge lower and lower. In fact the BBB-related group, which is considered middle of the line, has fallen in price by 42% since January of this year alone. The price losses have been steeper and quicker than any were estimating and investment banks as well as consumer banks have taken the brunt of the pain.

Remember last November when Bear Stearns was still alive and kicking? The company then wrote down 1.2 billion dollars due to the subprime mess, but said they believed this amount would suffice for their write downs. They were clearly way off. The company had to be bailed out by JP Morgan Chase and the Fed.

The mark to market format clearly makes it difficult for financials to know exactly how much they will be losing on subprime or any kind of mortgages. I think the lesson here is to think twice next time you here all the of analysts and television commentators coming out to declare this as "the bottom" or "the end of the write offs." These kind of mortgages haven't been around for too long, and no one has very much experience knowing how they will fare in a meltdown of this magnitude.

Be careful when the financial world is saying that things can't get worse, because generally they can get much worse before they ever get better.