If you are looking for the big news of the day, and happen to switch on MSNBC in search of it, you may think that something about Ellen DeGeneres, a seventh grader and a dog named Iggy is today’s big story.

But alas, as nice as it would be to think that Ellen’s “doggy drama” or Britney’s custody battle are the only things going on, unfortunately, we can’t live in that kind of perfect world.

Today, Bank of America (NYSE:BAC) reported a 32% decline in profit in the third quarter. The U.S.’s second-largest bank said that trading losses, defaults and writedowns has cost them close to $4 billion.

“The next couple of quarters will be messy for Bank of America,” said Andrew Seibert, a fund manager at Pittsburgh-based Stewart Capital Advisors, which oversees $950 million and owns Bank of America shares. “You are only seeing the beginning. The banks will be putting up a lot of money for reserves.”

Indeed, Bank of America isn’t alone in their problems – Washington Mutual Inc. (NYSE:WM) reported that their net income for the third quarter fell sharply after being hit by the housing and mortgage crises. Also reporting some pretty major losses are First Horizon National Corp. (NYSE:FHN) and SunTrust Banks Inc. (NYSE:STI).

Shares of financial stocks fell across the board after the release of this data. Obviously, the subprime meltdown and credit market woes have had an effect on banks – but what does it mean for the broader market? Despite all the noise in the markets right now, the major indices have continued to hit record highs – but The Survival Report’s Mike “Mish” Shedlock warns readers not to get too comfortable with this trend. He says that although the subprime mortgage market problems have been largely a financial event, “people have little idea how things have changed.”

“Unless a person has tried to secure a new mortgage or refinance an existing mortgage in the past two months, they probably have no idea how things have changed in the mortgage market. It will take time for consumers to be affected by all these events.

“This is one reason we are seeing weakness in the financials first before the broader market. But we can be confident about two things: 1) the broader market will have a hard time continuing higher if the financials, representing 20% of the market, head lower; and 2) the financials are the ‘canary in the coal mine’ when it comes to the collateral damage of the housing downturn. Where the financials go, the broader market will likely follow.”

Yesterday, we mentioned the Treasury Department report that showed a substantial outflow of foreign capital from the U.S. market, as Japan, China and Taiwan sold U.S. Treasuries at the fastest pace in at least five years. We haven’t seen a sell-off of this magnitude since Russia defaulted in 1998.

“Now here’s the bug-a-boo,” says our currency counselor, Chuck Butler, “this is August data!”

“That’s before the Fed cut rates in September! If Asian Central Banks were looking for improved returns before the Fed cut rates, I wonder how bad those numbers are going to look in September, and then for this month.

“I don’t think this is the ‘rush to the exit door’ that even thinking about scares the bejeebers out of me...otherwise the dollar would be circling the bowl right now!’

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.