What's New? Only the Recognition of What's Happened.

SOMETIMES THE MERE RECOGNITION of what's already happened can have major consequences.

Consider Wednesday's stock market action, in which the Dow Jones Industrials shed 360 points, or a couple of a percent and change. Not only has the market done that before in recent weeks, but it also has done it for the same reasons.

The dollar hit another low against the euro, which is as new a development as the president's approval rating falling to a record low. Wednesday's reason was a Chinese official's suggestion that his nation should diversify its $1.4 trillion of currency reserves.

That was hardly the first mention of such a notion, which already is apparent in the U.S. Treasury International Capital data see(www.treasury.gov/tic.) The latest numbers showed China selling $10.1 billion in dollar assets in August, which is about how much China had been buying per month for the past year.

Elsewhere, General Motors reported a $39 billion loss for the third quarter, most of which related to a non-cash charge for tax credit the company couldn't use. Another recognition of what's already happened, with no effect on the cash in GM's till.

More worrying but not less unexpected were losses of $757 million from GMAC, GM's 49%-owned finance arm, and ResCap, GMAC's mortgage unit. Imagine that, losses from consumer and home loans. Who would ever expect such a thing?

Adding to the pressures on the market was an estimate from Royal Bank of Scotland that Wall Street's writedowns from collateralized debt obligations could total a cool $100 billion. News after the close of Morgan Stanley's $3.7 billion writedown of CDOs only helped bolster the RBS estimate, which came on the heels of the $1 trillion projection of losses from less-than-prime mortgage assets proffered by Pimco's Bill Gross.

The truth is out there, but hanging some number on it serves to make it more real, apparently.

Then there was Andrew Cuomo doing his damnedest to follow in the footsteps of his predecessor, New York Gov. Eliot Spitzer. Cuomo, the son of former Gov. Mario Cuomo and now New York Attorney General, sent shockwaves through the mortgage industry by subpoenaing Fannie Mae and Freddie Mac over purported inflated home appraisals, especially on loans made by Washington Mutual.

Every financial crisis almost inevitably brings forth some crusading politician who promises to clean up the alleged abuses that were ignored in the bull phases but blamed when the market took its inevitable trip south. Spitzer rode his investigations into the Wall Street research abuses to the governor's mansion in Albany while prosecution of Wall Street types in the 1980s helped a one-time U.S. Attorney, Rudy Giuliani, get elected Mayor.

That the inevitable inquisition in the mortgage industry has started should come as no surprise. Indeed, the surprise is that it's taken so long. Still, the reactions were swift and severe. WaMu plunged 17.3% while Fannie lost 10.8% and Freddie shed 8.5%. After the bell, American International Group extended its declines of 7% suffered even before it reported a 27% drop in net income on a $2.7 billion writedown. None of which is encouraging in terms of stoking a mortgage revival.

Oil, the other usual suspect in this market, failed in its run to the psychologically important $100-a-barrel mark, which brought gold off its highs. Still, December gold settled up $10.10 at $833.50 an ounce.

All eyes will turn Thursday morning to Federal Reserve Chairman Ben Bernanke's testimony before the Joint Economic Committee of Congress. Coming just over a week after the Federal Open Market Committee's policy meeting, it would be shocking if Bernanke said much different now.

But the Fed faces the contradictory demands from the credit crisis and the inflationary potential of rising commodities and a falling dollar. The JEC wants to hear how Bernanke & Co. will finesse that. So will investors around the globe.

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