The next banking crisis on the way

Is this the quarter when banks finally admit all of their problems?

On Jan. 15, Citigroup announced it would take an $18.1 billion write-down on its portfolio of subprime mortgages and other risky debt, and the bank cut its dividend 41%.

With other banks following suit -- Merrill Lynch reported $16 billion in write-downs and other charges two days later, and Wells Fargo delivered similarly huge losses -- will they throw everything, including the kitchen sink, into their losses? That kind of quarter always marks the bottom in a crisis like this.

Nah. The banks and other financials have more losses from the subprime-mortgage mess on their books that they haven't yet confessed. Worse, the mortgage debacle has spread to other types of debt, with banks and other financial companies reporting mounting losses in their credit card and auto loan portfolios. And worst of all, the next big leg of the crisis -- the one I think will mark the true bottom -- has just started.

As the economy slows, the default rate is rising for corporate debt, especially for the high-risk, high-yield corporate debt called "junk" by many of us. That's opening a Pandora's box of potential write-downs that could dwarf the losses in the mortgage market.