Even though these loans have been losing value for years, it wasn’t until June 2007 that any of this mattered. That’s because of what is known in the trade as the “marks,” the value of a stock or bond as it’s “marked” by a firm. You are getting poorer by the second because many of these mortgage bonds were priced way too high because nobody thought that large numbers of borrowers would ever walk away from their homes rather than pay the interest that backed the bonds. Such a disaster had happened only once, in the thirties, and that was before loans were federally secured. The buyers and sellers accounted for the bonds as if they were as reliable as cash, because as long as employment was robust—and it is—they thought they would be fine.

But now all hell’s broken loose on Wall Street because of those mismarks. This spring, as many homeowners stopped paying, the mortgage bonds—for the first time—starting losing value. Hundreds of billions in bonds that were thought to be worth more or less the price they were sold at, it turns out, are worthless. That’s triggered a chain reaction: Brokers like JPMorgan, Goldman Sachs, and Merrill Lynch that lent money to the firms that bought the bogus loans—most famously, Bear Stearns—basically foreclosed on those firms to get their cash back. But the firms, which are always running full tilt, didn’t have the money to pay up. Bear, at the direction of the now-fired former co-president Warren Spector, let one fund just go down the drain. But Spector thought the other was still worth a great deal, so he put up $1.3 billion to pay back what the fund owed to the lenders and take direct control of the mortgage bonds. Spector, maybe one of the best minds in the bond business, genuinely believed that these mortgage-backed bonds still had substantial value. If someone as savvy as Spector thought these bonds were still good when they were actually worthless, that tells you that thousands of other managers are simply dreaming if they think their portfolios are worth anything near what they claim they’re worth. In other words, we’re looking at the start, not the end, of the lending meltdown.

Now these funds, which were supposed to be brimming with cash—the “liquidity” you hear about all of the time—turn out to have not much at all, and there are virtually no buyers anywhere for these mortgage-backed bonds, because who knows if the mortgages that are in them are worth anything? We only know that each day they are worth less than the day before, because every week, thousands of borrowers are being foreclosed.

Seven million people could lose their homes. New York, where the architects of card houses live, will feel the full force of the storm.

Here’s another layer: The panicked managers of these firms were supposed to be the buyers for all of the high-yielding corporate bonds being issued to pay for the private-equity deals of Cerberus, KKR, Blackstone, and other private-equity firms. They were supposed to lap up the paper for all of the leveraged deals that are in the hopper for underperforming companies like Tribune Corporation and Chrysler. The Goldmans and JPMorgans had already promised the money to the Blackstones and KKRs. They are on the hook—“hung,” to use the grisly vernacular—but they can’t sell the bonds to their usual pension-, hedge-, and mutual-fund clients because those clients don’t have anywhere near the money they thought they had and are facing redemptions from furious investors. Now, pretty much every large financial institution in the country is caught in a web it can’t get out of. Bogus mortgage paper is infecting the system, and no one has a cure.

Which brings us back to your money and why you’re losing it. Unless you keep your money in cash or Treasuries or CDs or the First National Bank of Sealy, there’s a pretty good chance that you’re in a fund or funds that are mismarked and worth less than they and you think. If you own a home, you’re in the financial crosshairs, too. It’s not just that the lending crisis is causing interest rates to rise, jacking up your monthly nut if you have an ARM. It’s that the value of your home is endangered because of the hit Wall Street—the industry, if not the stock market—is set to take.

In the past half-dozen years, the major brokerages in New York added hundreds of thousands of jobs in three areas: mortgage-bond sales and trading, private equity, and prime brokerage (the management of hedge funds’ brokerage accounts). Each has grown by leaps and bounds each year. Now all three are frozen. There are no mortgages to package and sell and no clients who want them. The private-equity deals are all hung. And the way I see it, the hedge-fund business is liable to be cut in half by the chain of mismarking and redemptions. I think that many of these firms have as many as 30 percent more people than they need right now in these departments, and all of them will be cashiered by the end of the year. The lists are being drawn up; the HR people notified. Not too close to the holidays, please! And for those who are left, sorry, no bonuses. The money was all eaten up by severances. Unlike other times on Wall Street, the jobs will dry up across the board, because so many firms have beefed up the same divisions. This time, get laid off at Bear, no walking across the street to Lehman. The departed will be cut off from billions in disposable income that fuel the New York economy.