Yesterday, the markets seemed to return to normal - or, at least to what is taken for normal by today's investors. Things that were already over-priced became more overpriced. And investors who were already over-stretched, reached a little further.

2.2 million Americans could lose their homes to foreclosure.

One thing is clear - volatility has returned. That long, lazy, self-assured and complacent period that annoyed us for so long seems to be over. And good riddance.

The whole U.S. mortgage industry - with over $10 trillion outstanding - is faceing a liquidity crisis.

Bad things happen to good people who do stupid things. That’s what the good people at New Century Financial - and the good people who lent them money - found out yesterday.

After the mini-crash two weeks ago, we expected some hot action in the financial markets. Instead, investors hit the snooze button again, rolled over, and went back into dreamland.

The European Central Bank has raised its key-lending rate to 3.75%, warning of growing inflation. That puts exactly 325 basis points between the yen and the euro, so the yen carry trade lives on.

Is it just a hiccup in a bull market or the growl of the bear phase?

So far, the slump in equities has sopped up some $2.3 trillion in excess liquidity. This liquidity is a form of 'inflation' - and falling inflation means falling prices.

Bill Bonner writes that a correction should be equal and opposite to the deception that preceded it.