"Every time financial firms and investors suggest that they've written assets down enough and raised enough new capital, a new wave of selling triggers a reevaluation, propelling the crisis into new territory. Residential mortgage losses alone could hit $636 billion by 2012, Goldman estimates, triggering widespread retrenchment in bank lending. That could shave 1.8 percentage points a year off economic growth in 2008 and 2009 -- the equivalent of $250 billion in lost goods and services each year.

"This is a deleveraging like nothing we've ever seen before," said Robert Glauber, now a professor of Harvard's government and law schools who came to Washington in 1989 to help organize the savings and loan cleanup of the early 1990s. "The S&L losses to the government were small compared to this."

   "Worse than the savings and loan bailout...nice...

   "And, soon to come, as I predicted, will be another wave that will hit hedge funds:

Hedge funds could be among the next problem areas. Many rely on borrowed money to amplify their returns. With banks under pressure, many hedge funds are less able to borrow this money now, pressuring returns. Meanwhile, there are growing indications that fewer investors are shifting into hedge funds while others are pulling out. Fund investors are dealing with their own problems: Many have taken out loans to make their investments and are finding it more difficult now to borrow.

   "They will deserve every hit they take. But, this is one thing that needs to be talked about: why did union pension funds invest billions of dollars in hedge funds? I know monetarily why: there were large returns coming back. But, wasn't it obvious that the day of reckoning would come, that the over-leveraging of the economy would bring this disaster?"

That is an excellent question.  Union investment should have been smarter than that.