The program pumpers are able to move the market, as always, but as soon as they stop it sags. The problem is the banks. The banking index ($BKX) and the regional bank HOLDRs (RKH) are well below their March lows. People are starting to realize how widespread the problems are. The problem assets of the big money center banks like Citi are well known, as are the mortgage problems of the S&Ls like WaMu. But also coming to light are the developer and builder loans. These are especially poisonous because, like neg-am mortgages, the banks often add the interest to the loan (called an interest reserve) during its life. This means everything looks good until the project is finished, but unsold. All of a sudden the developer needs to start paying down the loan, but he can’t. Something like 60-70% of the assets of the smaller banks are real estate related.

Even without actual defaults, these banks are going to have their balance sheets loaded with loans just sitting there waiting for something good to happen. And that means their capacity to make new loans will be impaired. Given that this economy depends on perpetually increasing debt, this is a huge problem and the semi-smart money is starting to figure this out. (The smart money is long gone, or short; the dumb money is buying “beaten-down values” from the semi-smart money).

And the TICK skyrockets as yet another jam job program runs. In the meantime, members of Congress are leaning on the CFTC to find evidence of “speculation” in the oil market. Morons. What do they expect? They let the Fed run the dollar into the ground, and then get all surprised when people put money into something they think will keep its value