Oh la la...

Is our Crash Alert flag still flying? Yes, it is...flapping in the breeze...almost proudly this morning.

Yesterday, the Dow lost 387 points. The reason for the beating? “Subprime concerns,” say the papers.

Perhaps the most immediate concern came from an unlikely source – France’s biggest bank, BNP Paribas. The bank has followed Bear Stearns (NYSE: BSC) by sealing two of its funds; for the moment investors are stuck.

“The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,” BNP Paribas said in a statement.

But don’t worry, dear reader. All is well. How do we know? George W. Bush said so. He says he is “confident,” that our modern markets “will work through these issues.”

Everyone is confident. Because we are all true believers in the Theology of Capitalism. But just in case this capitalism thing doesn’t work out, the Bank of Japan, the Bank of Canada, the European Central Bank and the Fed all joined to say that they would put some additional liquidity into the system. The ECB, for example, announced that it would make “unlimited” amounts of money available at 4% interest. The idea is to protect the financial system from a serious mishap. In a truly capitalist world, of course, there are no protections. People get neither what they want nor what they expect. Instead, they get what they’ve got coming . But the world’s banking cartels have stepped in to fix the credit system and make sure real capitalism doesn’t happen.

Meanwhile, Toll Brothers’ (NYSE: TOL ) chief executive says he hasn’t seen such little interest in housing in 20 years. And Bloomberg has a report predicting that the housing slump will deepen amid further “mortgage disruptions.”

Thanks to these problems, the entire markets seem to be ‘re-pricing’ risk, say the experts. It looks to us as though they had re-discovered risk. Volatility, long thought dead, seems to have suddenly risen from the grave.

But, we repeat, don’t worry, dear reader. This too shall pass...and soon stocks will be headed to new heights of glory... they will mount the hills of Zion, for sure.

That must be what investors in Blackstone’s new fund think. Blackstone (NYSE: BX ) has raised the world’s biggest pile of private equity money ever – more than $21 billion. Even the California state teachers have put a billion dollars of their pension money into it. Talk about true believers! What is Blackstone going to do with so much cash? How is it going to find such huge values that, somehow, the investing public has overlooked?

But that is what happens when you reach the silly side of a credit bubble. People are ready to believe anything. They no longer fear losing money. And they can’t tell the difference between an investment and a rank speculation. So, even pension funds and bible schools put money into swaps, CDOs and private equity funds. They can’t imagine losing it. Things always go up, don’t they?

And things always do go up when the credit bubble is expanding. When it contracts, most things go down. If we are not on that side yet...we will be sooner or later. So, we’ll leave our Crash Alert flag up for a while...

*** The Wall Street Journal reports that desperate builders are offering incentives to get buyers in the door. In Virginia, for example, they’re advertising “Sizzlin’ Summer Sale Savings.” Then, running out of ‘s’s, they offer, yes, free granite countertops. This is amazing to us. We thought every kitchen in America already had granite countertops. We considered granite countertops the one solid, lasting, tangible thing this boom had really produced. Apparently not. There seem to be a few counters still in the USA without granite on top. We hope this boom continues for another couple of years in order to complete the granitization of America’s kitchens.

*** What happened in Florida, according to the press, is that the flippers got flipped. They bought condos and houses...expecting to flip them to other buyers at a higher price. Some new apartment houses were bought almost entirely by flippers. They all thought that the final buyers would come along with fat wallets and empty heads. Many did. But not enough. After flipping the places back and forth between themselves, the flippers could not find retail buyers willing to move in, pay the taxes and mortgages. The whole market is suffering from an overhang of properties – which could take years to work down.

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