Middle America -- and middle-American businesses, except for construction -- are largely unaffected by the credit crunch. The smaller banks aren't cutting home equity lines, and Rich says they aren't experiencing abnormal losses. That's because they're local bankers who know their customers.

The banks in trouble are the ones that offer home equity loans and farm out lending to brokers who have little incentive to make sure the loans are good ones. Securitized home equity loans and second mortgages are showing significant losses.

Fool Me Once, Shame on You

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It's a different story at many of the larger banks. Let’s look at 2 tables from my friend Gary Shilling. (www.agaryshilling.com) It is well worth the $275 a year (the investment-professional version is $1,000).

There have been writedowns and losses of about $501 billion in both investment and commercial banks; they've also raised $353 billion in capital. As I've written repeatedly, it is likely that we will see another $500 billion in losses. The IMF estimates total losses of $1 trillion. Private estimates from credible sources can run as high as $2 trillion.

As you'd expect, the largest losses are typically in the larger banks, with some exceptions. Goldman (GS) has only written off $3.8 billion. Citigroup (C) has written off $55 billion.

This table sums up the losses from 64 banks, and adds in “other” losses from US, Canadian, European and Asian banks. Outside the top 64, there have only been writedowns of $16 billion. Again, that speaks to the phenomenon discussed above. It seems that the bigger banks took the riskier bets, getting stuck with subprime and other mortgages and loans. Banks that couldn't afford to get into the game didn't have the losses. In this case, being small was an advantage.

So, how did the investors who gave the various banks capital do on their investments? Shilling shows us 9 deals done by sovereign wealth funds. The best return was down a mere 26.6%. The worst was Singapore in UBS for down 56% in less than 9 months.

The old line is “Fool me once, shame on you. Fool me twice, shame on me.” How difficult do you think it is for any major bank to go back to sovereign wealth funds and ask for more? If they got it, you can bet the terms would not be favorable to current shareholders.