The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

Two estimates

Wolf argues that the financial sector's losses from subprime loans and related asset defaults will total $1 trillion. What's more, he's not at the top end regarding a red-ink estimate. Wolf note's that NYU Professor Nouriel Roubini, Chairman of RGE Monitor, argues that financial losses might amount to $3 trillion.

Is Roubini's projection off-the-mark?, Wolf asks. Perhaps not, when one includes losses in lateral sectors, which Roubini does. Roubini included in his estimate home value / home prices, which have fallen 10%: Roubini expects them to fall a total of 30% when it reaches this cycle's trough.

Next, with the analogy that a baseball catcher can better-prepare for a collision at home plate if he gauges where the runner is as the throw comes home, Wolf then works us through the implications of a Roubini Reality: a $2-$3 trillion loss would de-capitalize the financial system - - the biggest U.S financial crisis since the 1930s. Government intervention would not be an issue. Only the size of the government's intervention would be open to debate.

The way home

But Wolf goes on to say the above need not lead to a rebirth of the barter system in two thousand and eight, Anno Domini. First, Wolf suspects Roubini's scenario is slightly pessimistic. Second, citing Goldman Sachs, after allowing for loan loss provisions - - the proportion of loss-making loans advanced by the non-leveraged sector and the ability to write off losses against taxes - - Goldman's $1.15 trillion estimate for financial sector losses is reduced to $298 billion. Using Goldman's logic, Roubini's losses would amount to $750 billion - - huge, Wolf says, but manageable.

Economic Analysis: Friday's stunning announcement of liquidity problems at Bear Stearns' (NYSE: BSC) may give one the impression that the task is becoming less manageable, but so far the U.S. Federal Reserve, in conjunction with its companion major central banks (European Central Bank, Bank of England, Bank of Japan, Swiss National Bank) has demonstrated it is up to the task. Namely: 1) Maintain key institution liquidity; 2) Maintain financial system liquidity; 3) Prevent financial service losses from irreparably paralyzing healthy sectors; and 4) As the International Monetary Fund has outlined, notify all major national governments that additional fiscal stimulus - - emergency, short-term and long-term - - may be needed in the months and quarters ahead.

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Much, much later, during a decidedly calmer period, citizens and national legislatures can begin to investigate why this financial crisis happened in the first place.