Central bankers see few options to repair a damaged financial sector and weak global economy underway for years now.

Thud.

Thud, thud, thud.

Bang!

It’s the sound of massive dominos falling, my friends -- a worrisome crash that has become all too familiar to observers of the ongoing financial crisis.

U.S. home foreclosures climbed 55% in between June and July. Year over year, U.S. banks have tripled the number of “repossessed” houses.

I put repossess in quotes because it is questionable as to whether many of these folks ever actually owned the houses in question. Seeing as how their perverse loans allowed them no equity stake whatsoever, it might appear to a disinterested observer that they are in fact simply being evicted from rented houses.

Thud!

These foreclosures are both a fallen domino and the trigger for the next big crash. When they are wrapped into our national statistics, they distort our understanding of the situation at hand in the most peculiar ways.

First of all, they make it appear that both U.S. housing sales and GDP are actually gaining ground. In fact, just Monday, I saw some of Wall Street’s favorite shills post headlines touting July’s “3.1% Increase in Home Sales!”

The catch? Everyone involved is losing their shirts on these sales.

There is now an 11-month backlog -- some 4.67 million unsold houses and condos -- weighing down the U.S. housing market. This glut of “resale inventory” is keeping builders on the sidelines. Permits and broken ground are at a 17-year low. The Dow Jones U.S. Home Construction Index continues to grovel along around the 300 mark, making for a 61% decline from the heady days of early 2007.

Thud.

That same glut is killing the hopes of regular folks who had hoped to peddle off their property at any sort of a profit. The median price of a sold house in the U.S. has fallen 7.1% between July 2007 and July 2008 -- a trend that shows no sign of slowing.

Thud.

Just this weekend, we heard that a Kansas bank (the ninth this year, by my count) has gone the way of all FDIC-insured deadbeats.

The banks that fomented this mess in the first place (by pitching loans to anyone with a pulse) continue to rack up truly awesome losses. Anyone who claimed over the past few months that the worst was over for the financial sector has pushed their credibility so low as to be flirting with plain and simple fraud.

Standard & Poor’s, which initially smiled benevolently as Wall Street flung about worthless paper touted as pure gold, now states that U.S. banks ought to set aside another $2.65 billion against mortgage losses PER ANNUM if they wish to survive the next three years.

S&P’s managing director for financial institutions even went on record last Thursday, warning that “losses will first center on residential-mortgage related loan books and then on homebuilder loans.”

She followed those dire words with the following assessment of the situation on the ground: “This will probably go on record as the worst period for banks, not only in the US but potentially abroad as well.”

Some say that the folks at S&P are still being conservative when they warn that the sector won’t approach anything resembling “normal” until 2010. Be that as it may, this latest report rounds up the damage just here in the U.S. to better than half a trillion dollars.

Thud.

Washington has found a way to prevent two of the largest financial institutions in the world, Fannie Mae and Freddie Mac, from destroying what’s left of the U.S. economy.

Rather then allow these doddering giants to default on their bonds, they propose screwing every single shareholder in these “semi-public” corporations out of every single penny of their supposedly fail-safe investments.

Thud.

In Jackson Hole, Wyoming, the world’s central bankers, including such luminaries as our own Ben Bernanke, Europe’s Jean Claude Trichet, and Bank of Israel’s Stanley Fischer, are still arguing as to how to begin to prevent a collapse that has been building for the better part of the past decade.

Apparently, the tiff over whether a central banker should toady up to failing stock houses grew so heated, one participant suggested that the grey men needed hosing down with fire extinguishers. “They are taking away the keys to the Maserati,” complained ex-Bush adviser Pippa Malgren. “This is going to dramatically change the financial landscape.”

Thud.

No shock then that investors are sidling away from the market in general, and the financials particular, as quickly as they can manage. As I sit to write, the S&P 100 (OEX) is down some 1.6% on the day. The S&P Financial SPDR (XLF:AMEX) is at the bottom at that barrel, with losses of some 2.42%.

This drop is, well, a drop in the bucket, as it were -- a mere downside twitch in the financials’ long downward progression. So far in 2007 and 2008, WOW subscribers have seen gains in excess of 1110% on puts against this horrid slide.

But that slide is nowhere near finished. Daily, another domino in the long chain reaction tips over, crushing its neighbor as well as any and all onlookers.

Bang!

WOW’s model portfolio is currently holding puts against MetLife (MET:NYSE), Bank of America (BAC:NYSE) and Capital One (COF:NYSE). All three may offer further triple-digit gains to those with the wisdom and foresight to see this horrid chain reaction through to its end.

Sincerely yours,

Adam Lass