A bloodstained financial sector plodded into the afternoon, leaking money after a panicky global selloff found U.S. victims. The

Philadelphia Stock Exchange/KBW Bank Index

was recently off 5.4%. It was hit after

Fitch

, an international credit rating agency, put 19 Japanese banks on its Rating Watch Negative list, fearing that falling stock prices and loan problems could affect credit quality.

Rating Watch Negative is not a good sign. It's like someone's looking into your personal credit rating to see if you're at risk to be a deadbeat. No one would look unless they had some reason to.

Now, most of those 19 banks, which include

Fuji Bank

and

Sanwa Bank

, do not trade in the U.S., but that doesn't mean their problems can't spread into the U.S. economy. Japanese-American market relations are quite close, especially in the crowded tech field. And Japan has never truly recovered from its devastating crash in the 1989 to 1990 period, with the

Nikkei 225

recently hitting 16-year lows. That turned the clock back to when

Pee Wee Herman's Big Adventure

hit the big screen . There's nothing funny about that horrific hemorrhage of money, which calls into question the quality of many lending institutions.

International investors faced down the news and began asking a lot of questions, at first convinced that Fitch had indeed cut the ratings on the Japanese 19. The crisis spread as investors found reason after reason to sell this morning. Traders got itchy and sellers got panicky. It was like that scene from

Big Adventure

when a paranoid Pee Wee ranted: "The mind plays tricks on you. You play tricks back! It's like you're unraveling a big cable-knit sweater that someone keeps knitting and knitting and knitting and knitting and knitting and knitting..."

And knitting. One problem led to another.

While most American investors slept last night and the Japanese 19 took a swan dive,

Goldman Sachs

advised caution on the European banking sector. The brokerage said it was "battening down the hatches on German banks," and dropped its 2001 forecasts on

Deutsche Bank

,

Dresdner

and

Commerzbank

This, in turn, set up another wave of selling that helped drag Frankfurt's

Xetra Dax

to a 16-month-low with a 5% fall. London's

FTSE

and Paris

CAC

fell accordingly as investors yanked their cash out of financials. It probably didn't help much that early-morning chatter was focused on the possibility that a massive European hedge fund walked away from the trading table.

And knitting.

Finally, with all this conjecture in the air and market futures about as far down in the drain as possible, the American markets opened. There was a resounding thud as the three blue-chip financials --

American Express

(AXP) - Get Report

,

J.P. Morgan Chase

(JPM) - Get Report

and

Citigroup

(C) - Get Report

-- opened at their worst levels of 2001. AmEx hit a 21-month-low, Citi a nine-month-low and Morgan a three-month-low.

Banks, insurers and brokerages felt the pressure immediately. In 15 minutes, the

S&P Insurance Index

dropped 3%. The

American Stock Exchange Securities Broker/Dealer Index

dropped 5%. And that was the day, really. Over and done in the first 15 minutes, as investors unraveled a story of spreading trouble.