Hank Paulson and Ben Bernanke are finally getting around to admitting that the subprime problem is not "contained." Regrettably, their grudging admission of reality also comes with a price -- they are unwilling to offer a solution to a problem whose magnitude they cannot even count.

This is the scariest part. According to the New York Times, at a speech in New York last night Bernanke said, "I'd like to know what those damn things are worth. Until investors are confident in their evaluations, they are not going to be willing to fund these vehicles."

This spring, Paulson and Bernanke were singing the same hymn: "subprime is contained." The reasons? The administration's trademark combination of religion -- the desire to avoid a "moral hazard" -- coupled with incompetence -- a lack of awareness of the magnitude of the problem or how to solve it. Moral hazard is a concept I happen to agree with -- investors should get the benefits and pay the costs of their risky bets rather than asking the government to bail them out of their mistakes.

The New York Times reports that another European bank hedge fund has been wiped out due to its investment in subprime mortgage backed securities (SMBS). Netherlands' NIBC Holdings reported that it lost at least $188 million on investments in the American mortgage market for subprime loans. It joins Paris' BNP and Düsseldorf, IKB Deutsche Industriebank, and some Australian hedge funds and banks.

With the globalization of financial markets, it's clear that nobody knows which banks, hedge funds, insurance companies, and pension funds own those SMBSs. Nor do they know how much money banks have lent these institutional investors. But if the banks decide they want their money back, and the collateral is worthless, then the institutional investors will either need to sell more liquid holdings -- e.g., stocks -- or they will file for bankruptcy.

In a rather lame move, the Wall Street Journal reports that in an effort to see if they're hiding losses, the SEC is examining the books of U.S. investment banks to see if they're marking down the value of their own subprime portfolios in the same way as they are marking down those of their clients. But what's really needed, as I suggested above, is a view of the global damage -- not just the situation in the U.S.