1929 seemed like such a fairy tale when I was growing up. My little kid brain could barely grasp the concept of people lining up at closed banks for their money, only to be not able to get it out. Stories of people not having a dime to their name, who used to live in glorious houses and hang with the creme de la creme. Stories of total panic, of a complete and devastating financial meltdown.

My adult brain can still barely picture that scenario.

But it's getting a bit easier these days as I read the headlines, and especially the complete and total lack of oversight and lending morals at the banks today.

Someone holds the loans that are about to go belly-up around the country. It might be China, it might be hedge funds, it might be banks and it might be Fannie and Freddie. But someone holds the loans. And it's going to be so ugly. 1929 ugly in some cases.

NEW YORK (MarketWatch) -- With the $10 trillion housing market weakening fast, in defiance of the assurances of most pundits just a year ago, investors are starting to question the confidence among banks about their ability to weather a housing downturn

Just a few months ago, homebuilders, the National Association of Realtors and most Wall Street analysts were still predicting a soft-landing in housing, in the same reassuring way they used to say last year that housing would remain strong in 2006.

But after the freshest figures - which showed sales of new homes sales plunged 21.6% in July from the year earlier, inventories of unsold homes soared and prices fell - there is little debate that the housing market is stumbling much faster than most expected.

Similarly, conventional wisdom, at least as officially voiced by banks and Wall Street analysts, has so far held that banks' earnings would be only modestly impacted as the mortgage business continued to soften.

But "this is the most inflated housing market in the post-war era," said Paul Kasriel, chief economist at Northern Trust. "If we're to have a severe recession in the housing market, it would seem to me that the banking system cannot escape significant losses."