Read This Chart.. THIS. AIN’T. OVER.

There’s a myriad of causes at the heart of this crisis, from mortgage and appraisal fraud, to CDO squared derivatives, to rating agency and monoline insurance negligence to Credit Default Swaps. But at the root of the credit market freeze is a simple problem, none of the banks trust each other. And they all have good reason to be distrustful. For over a year banks have simply not admitted the extent of their losses, and many institutions are insolvent. The crisis cannot end until the crony capitalism in Washington comes to an end, and the government organizes an orderly nationalization and recapitalization of the insolvent banks.

Are we at the end of the acute phase of the credit crisis, or in the eye of the storm? On one hand, the Lehman CDS unwind completed Friday, and although the counterparties must pay-up to the tune of $270B, or 91.375 cents on the dollar, the world (seemingly) did not come to an end. On the other hand, US citizens are so fixated watching their stock holdings evaporate and businesses close their doors, they may not be aware that the ’subprime’ housing disaster in the US is not yet over.

One glance at the above chart of mortgage resets above should make anybody wonder, how in the world the credit markets will withstand another three years of mortgage resets? Please peruse this CR article on the coming wave of ALT-A mortgage resets. Many of these Alt-A loans are tied to the LIBOR rate, and arguments negating the impacts of these resets usually hinge on the LIBOR remaining low. But as has been well documented elsewhere, the LIBOR rate is fluctuating wildly, hitting highs above 7% within the last two weeks. And as has already been seen with the subprime crisis, many of the defaults occur even without a devastating reset, as expiring ‘teaser’ terms (like interest-only payments and the end of negative amortization) prove enough to torpedo recent buyers.

While many areas of the country have seen significant declines in home prices, there are still some very bubbly areas that have yet to realize the losses ahead, notably the pacific northwest markets like Seattle and Portland. Evidence seems to indicate that the many of the loans made in these more expensive areas were the Alt-A type loans that are now poised to begin resetting. Though the mark-to-market pricing of mortgage securities is forward looking, there is no reason to believe that banks are realistically pricing in the full damage of the looming Alt-A tsunami.

We have a very limited amount of time to organize a managed unwind of this mess. Disturbing reports of trade disruptions are beginning to percolate through the wire. Please read this excellent article from the UK’s Telegraph on price discovery and the need to expose all of the insolvent institutions. We can not afford foot dragging from Treasury Secretary Paulson. European governments are clearly coming around, but the crony corporatists in the White House are still trying to protect the chosen banks. Preferred equity holders in these firms can no longer be protected by backwards asset purchase schemes. It is time to force every player to show their cards. NOW.