The sub-prime market problem in the U.S. is causing investors to wonder what’s in store in the near future. Should I keep my money tied up in bank stocks or move it somewhere else? When will the credit crisis end or at least level out?

Citigroup Inc. is trading at a nine year low - just over $26 as of this writing - and price per earnings is currently 37.2. Analysts have finally wised up on this and other banking stocks because they realize that there is more trouble to come.

Another place to look is at the performance of the Financial Index Fund XLF. This ETF tracks mostly banking and financial institutions. The fund lost approximately 19% in 2007 and continues to head down in 2008.

The sub-prime mess was clearly caused by poor lending practices. Sub-prime loans are higher interest rate loans to people that could not qualify, because of a poor credit score or other financial difficulties, for a conventional loan. The banks decided to loosen their lending practices to allow more people to obtain mortgages; the hope was that this would also lead to an increase to their bottom line.

Many of them seemed to miss the Banking 101 class where they should have learned that they should not loan money to people that couldn’t afford to pay it back. Nevertheless, people with poor credit were eagerly loaned money by banks trying to increase revenue and profits. The banks knew exactly what they were doing when they loaned these folks money - but they knew they had an ace in the hole if there was a problem.

That ace in the hole was the soaring U.S. real estate market. If borrowers got into trouble, they could use the equity in their homes to take out a second mortgage to pay off credit card debt or to get cash. And the beat goes on! This strategy worked for several years.

Of course what goes up must come down, and the U.S. housing market has slowed down in many areas of the country, causing that safety net to, in affect, dry up. There is no longer enough equity in many of these houses to allow for a home equity loan.

Without the funds they need to keep up the payments on their sub-prime loans, many customers started to default and suffer foreclosure, and that’s basically where we are today. In addition, many of the sub-prime loans were of the ARM (adjustable rate mortgage) variety, and the interest rates are now ticking up compounding the problem.

As interest rates tick up and the number of foreclosures continue on the rise, another problem stares the banking industry squarely in the face - a problem not many are talking about or thinking about - credit card defaults. Just as rising home prices insolated homeowners against the threat of foreclosure, they also insolated homeowners against their rising credit card debt load.

As debt became overwhelming, homeowners simply took out a second mortgage, secured by the rising value of their home, to pay down or pay off out of control credit card debt. And just as that strategy has ended for the sub-prime homeowner, we are now seeing an increasing number of credit card defaults - and this could be just the tip of the iceberg. The Associated Press week reported that the value of accounts that were more than 30 days late increased by 26% in October from a year earlier - to $17.3 Billion.

When homeowners are no longer able to borrow against their home equity to pay off credit card debt they no longer have the insulation they once had. And if the habits that got them to that point have not changed, homeowners with credit card debt will soon reach the end of their ropes, ending in bankruptcy, foreclosures, or both. All of this spells more trouble for major U.S. banks tied up in heavy loans through credit cards. Major banks will continue to have to write off the result of all these bad behaviors.

And if all this isn’t bad enough, the response from the banks thus far has been to raise the interest rates on those most affected, thereby compounding the problem and forcing consumers into bankruptcy much sooner. Banks typically employ a tactic called “universal default” which allows them to raise interest rates even if the consumer was not late in their payments to the bank holding the card, rather to another bank. The results are the same, the consumer stops paying and the banks are forced to swallow more bad debt.

Fortunately some sane steps have been taken to help consumers caught in the ARM mortgage trap with several banks agreeing to freeze interest rates on some of these loans. But the freeze applies to a limited number of consumers that pay their bills on time among other conditions. There are still plenty of consumers that do not and this program will not apply to them.

So if you think you’ve seen the end, or even the leveling off, of the credit crisis, think again. And as an investor, if you hold bank shares or mutual funds heavily tilted in that direction, your investment values may continue to plunge for sometime to come.