Why This Was A Different Sell-Off

There were a couple of key differences between today's sell-off and the recent late day declines:

1) Volume was heavier; instead of a low volume, high volatility sell-off, this was an old fashioned high volume, high volatility sell-off; in other words, sellers materialized.

2) Big-name energy stocks, which have held up well in November, sold off aggressively the minute oil broke decisively through $50 around 2 PM ET; with Chevrondown 9 percent, Exxon down 7 percent.

As for the auto mess, House Speaker Pelosi laid out her position very clearly: until we see a plan, we cannot show you the money. She didn't say no, and Sen. Reid indicated the Senate may reconvene in December if and when the auto companies show a plan.

Everyone believes this will happen (GM ended up 3 percent, Ford up 10 percent), and the auto companies will get some kind of bridge loan, but the murkiness only added to the confusion.

And now, to the key question: why do financials keep dropping? The explanation is not complicated. The Street believes the capital raised is insufficient to cover additional losses.

Many, like Citi , would like to sell assets, but loans for such purchases are all but impossible.

How much more capital is needed? We don't know. But estimates are high. Yesterday, for example, FBR Capital Markets said that the U.S. financial system still needed at least $1.0 trillion to $1.2 trillion in additional capital.

Private market capital-raising is becoming more difficult (Prince Alwaleed did not double down on his bet today on Citi), so FBR and others believe more government money will be needed to recapitalize the system.

There is also considerable discussion that banks are likely to continue cutting their dividends. I think this is a safe bet, and it is an additional reason these stocks are under pressure.

The bottom line: there is not yet enough capital in the banking system to balance the perceived risk. An additional problem is that much of the assets from the banking system went into unregulated investment vehicles, which rarely trade.

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The feds are now trying to bring these assets unders some kind of regulatory scrutiny by issuing commercial bank charters to the likes of American Express, Goldman Sachs , and Morgan Stanley .

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