Mr. Goldman and Mr. Sachs were pretty smart. But not even the Alpha Dogs can outrun a market trend whose time has come. Misters Goldman and Sachs couldn't do it in the Great Depression; and their heirs and assigns can't do it today.

Yesterday brought news that Goldman's flagship Alpha Fund took a loss of 5.7% in the month of February.

We have no idea of the specific bets that went bad. But the fact that any bets made by the masters of the masters of the universe went bad, signals to us that money shuffling is not as sure a business as it was a year ago.

From the Peach State comes word that another mortgage lender has closed up shop.

The Journal Constitution:

"Atlanta mortgage lender SouthStar Funding has shut down, citing the industry's subprime lending woes.

"SouthStar's Web site posted a brief note saying the company 'regrets that it was necessary to cease its mortgage lending operations. The recent unprecedented downturn and policy changes in the mortgage industry necessitated this action. SouthStar appreciates its employees' and customers' loyalty to the company throughout the years.'

"The company, which employed about 500 in Georgia and another 100 in California, was founded in 1998…it generated $6.3 billion in mortgage loans last year, [and] shut down operations in Denver and Orlando about a month ago."

Meanwhile, the New York Post reports that M&T, a mortgage company in Buffalo, got whacked. Investors marked down the stock 8% on Monday, after the company reported trouble with its Alt-A mortgages (one step up from subprime).

How fast and how far up the problems in the credit structure will go we can't tell you. The National Association of Realtors admits to only a 2% decline in housing prices nationwide. The former Goldman-man, now U.S. Treasury Secretary, Hank Paulson, says the trouble in subprime won't affect many people - only minorities and trailer trash.

(Here, an aside…we only know one person who lives in a trailer, and he's one of the least trashy people we've ever met. He's also one of the last few people in America who doesn't believe in credit. He's saving his money to buy a house - with cash!)

"It generally takes a crisis to get people to act," a recent TIME magazine article quoted our own Addison Wiggin in saying. And when the subprime disaster finally reaches fruition, we'll be seeing a lot of people scrambling to get their acts together.

But have we seen the worst of the trouble in subprime? We doubt it. Over the last two years, we have illustrated the connection between property prices and economic activity so often that our dear readers are probably getting sick of it. No house price increases, no increase in mortgage debt, no increase in consumer spending, no GDP growth…at least, that's what we kept saying. Maybe now we'll find out if we were right.

*** So far, the lenders have proved remarkably robust. Once they can do no more damage to one group of borrowers…they move on to the next! Techs, telecoms, dotcoms, subprime…now they are falling all over each other to lend money to private equity deals.

Investors' "appetite for risk rises," reports Bloomberg - focusing on the growing appeal of futures contracts over boring old bonds. With all the trillions of dollars worth of derivatives already passing through the world's financial digestion, a trade war with China getting underway…and perhaps a real war with Iran (Russian intelligence sources say it's brewing in a matter of days)…you'd think it would be time to push away from the table and light a cigar. But no…they're still chowing down. "Deals…deals…deals - give me more deals!"

Sam Zell just scored a big one - buying the Tribune company. It took $8 billion to swing the deal, according to the press reports. But Zell put in only $315 of his own money. The rest was 'leveraged' - debt, in other words. How? It's not clear but there is speculation that Zell is using a leveraged Employee Stock Ownership Plan (ESOP). That is, he will borrow a huge amount of money through the plan and have employees vest into the stock over time as a pay back. A big attraction to the new owners would be the significant tax benefits, but what happens if the value of the company declines in the future, as it might, with all the new debt added?

We don't know. But there is debt everywhere. If it ever gets marked down…there will be a lot of unhappy investors around. Reports also say that Tribune might invest a part of employees' pensions in the new firm…without even seeking the beneficiaries' permission.

Maybe lending billions to a real estate tycoon so he can buy into a newspaper business, whose sales must be under threat from the Internet, is a good financial move. Maybe it is not. We have not looked, but there is bound to be Mr. Goldman and Mr. Sachs in the deal somewhere.

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