How did sub-prime do all this damage?

I've been reading and watching the news, as we've all been doing for our industry. 

Doesn't it strike you as peculiar that the problem with subprime loans should have such a tsunami effect on the entire financial system?  Seems this has uncovered a major systemic problem with how the world does business with all the derivatives.

I think this points to the fact that we're actually only trading electronic bits, not hard assets.  And the value behind the bits is the mind-set, belief and good-will of those doing the buying and selling. AKA market psychology.

If we think it has value, then it does.  And right now, not much has value.