Some housing bubble news from Wall Street and Washington. Associated Press, "Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades. For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982."

"Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s."

"The national median existing-home price for all housing types was $208,400 in December, down 6.0 percent from a year earlier when the median was $221,600."

"Total housing inventory fell 7.4 percent at the end of December to 3.91 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in November."

"'The fall in inventory in December is encouraging, but inventories remain elevated and buyers have a clear edge over sellers in many markets,' Yun said."

"Regionally, existing-home sales in the South are 20.9 percent below December 2006. The median price in the South was $173,400, down 4.1 percent from a year ago. Existing-home sales in the Midwest are 20.5 percent below a year ago. The median price in the Midwest was $159,800, which is 3.9 percent lower than December 2006."

"In the West, existing-home sales are 24.8 percent below December 2006. The median price in the West was $309,800, down 11.1 percent from a year ago. Existing-home sales in the Northeast are 22.4 percent below a year ago. The median price in the Northeast was $258,600, down 8.9 percent from in December 2006.'

From Bloomberg. "Lennar Corp., the biggest U.S. homebuilder, reported the largest quarterly loss in its history as the deteriorating housing market led to a $1.86 billion writedown for land and falling property values. Revenue fell 49 percent to $2.18 billion, Miami- based Lennar said."

"CEO Stuart Miller said market conditions are unlikely to improve this year and 'might continue to decline in the near term.'"

"New orders for the period ended Nov. 30 fell 50 percent to 4,761 and the cancellation rate was 33 percent, unchanged from a year earlier, Lennar said. Orders fell the most in Arizona, Texas and Colorado, plunging 57 percent. In Florida, Maryland, New Jersey and Virginia they dropped 55 percent and in California and Nevada they declined 40 percent."

"'It was a tough, tough quarter by any stretch,' said Eric Landry, an analyst at Morningstar. '2007 losses have just about wiped out everything from 2005 and 2006.'"

"The average sales price of homes delivered decreased to $291,000 in the fourth quarter from $302,000 a year earlier, primarily due to big incentives. Incentives were valued at $58,800 per home delivered in the fourth quarter of 2007, compared with $47,300 in the same period last year."

"The company cut its work force by 35 percent in 2007 and in November, Standard & Poor's cut Lennar's credit ratings to junk status."

From Reuters. "Ryland Group Inc, the No. 8 U.S. home builder, reported a quarterly loss on Wednesday compared with a year-earlier profit, partly because of large write-offs for land and inventory values, and an income tax charge."

"Ryland's quarterly results include charges for write-offs for inventory and property values of $242.7 million. New orders during the quarter fell 7.1 percent to 1,596, and the average value fell 14.4 percent, reflecting the generous incentives builders are offering to buyers."

"New orders dropped 7.1% while closings slid 30%. Like others in the industry, Ryland has tried cutting prices - up to 25% during one November weekend - to move inventory. Many of its homes are in southern California, Arizona and Nevada, where real-estate prices have tumbled."

The Atlanta Journal Constitution. "Officials for Atlanta-based Beazer Homes acknowledged Wednesday the many challenges facing the troubled homebuilder and the uncertainty of the slumping economy. Closings were down by 24 percent and new home orders dropped by 29 percent, the company said in a Securities and Exchange Commission filing."

"Beazer also reported improved, thought still serious, cancellation figures. The cancellation rate on sale contracts was 46 percent in the fourth quarter, down from 68 percent in the previous quarter."

"Neither the SEC filing nor the presentation included quarterly earnings. The company is currently recalculating its earnings for much of the past decade after revelations that certain aspects of its operation had been inaccurately recorded."

"Chief Financial Officer Allan P. Merrill cautioned the investors not to expect sales or housing starts to show significant recovery anytime soon. 'Our expectation is that this year is going to be very tough,' Merrill said."

"In addition to the staff reductions, which have cut the company's workforce in half, Merrill said, Beazer has also reduced its land holdings, pared down the range of options it offers buyers in everything from floor plans to plumbing fixtures and even reduced prices on its homes in some locations as much as 30 percent to stimulate cash flow, according to Merrill."

"'We are aggressively defensive. That's our posture,' Merrill said."

From BBC News. "French bank Societe Generale announced fresh losses of 2.05bn euros related to the sub-prime mortgage crisis in the US."

"Sovereign Bancorp Inc. on Wednesday reported a 12-fold widening in its losses in the fourth quarter, as it recorded a massive write-down because customers defaulted on loans and the value of its investment in a New York thrift fell."

"Results were hurt by a $1.58 billion write-down of goodwill — what a company is worth beyond its assets. About half the write-down came from a decline in business at Independence Community Bancorp in Brooklyn, which Sovereign purchased over some shareholder objections in June 2006. The goodwill write-down was higher than what Sovereign disclosed last week."

"Sovereign also booked $180 million in pretax, noncash charges related to the decline in value of its Fannie Mae and Freddie Mac preferred shares. Another $27 million in charges came from loan defaults by two unspecified mortgage companies."

"Sovereign increased its reserves for loan and lease losses — a buffer against bad debt — by $88 million to $738 million."

"Bond insurer and reinsurer Assured Guaranty Ltd. said Thursday it will take a $302.9 million loss on the value of a derivatives portfolio and $18.1 million in losses tied to its home equity line of credit business during the fourth quarter."

"Assured Guaranty had $7.01 billion in exposure to the U.S. subprime market at the end of December, representing about 27 percent of its total mortgage-backed securities exposure."

"The U.S. Federal Reserve and other central banks are partly to blame for the financial-market slump that's now threatening to derail the global economy, said investors and former policy makers at the World Economic Forum."

"'It's hard to give central banks a very high grade over the last couple of years on recognition of bubbles and actions taken to address them in the policy or regulatory spheres,' said former U.S. Treasury Secretary Lawrence Summers in a panel in Davos, Switzerland."

"Fed Chairman Ben S. Bernanke is facing the same objections leveled at his predecessor, Alan Greenspan, who was slammed for not doing enough to prevent the Internet stock boom and then cutting rates too low to limit the fallout."

"In 2003, the Fed reduced its benchmark to a 45-year low of 1 percent, leading to a house-price boom that turned to bust in 2006. That prompted a collapse in the market for mortgages to risky borrowers. It's now derailing financial markets because so many banks bought derivatives linked to those mortgages."

"'Central banks lost control of the situation when they allowed financial institutions to develop new financial instruments which they themselves didn't understand,' said Soros."

"Some Davos attendees came to the Fed's defense. 'We could pierce bubbles but we'd pierce a lot of non- bubbles and take a lot out of gross domestic product,' said John Snow, also a former Treasury Secretary. 'We need to reform regulation.'"

"The ECB nevertheless argues that it may be possible for central banks to 'lean against the wind' by raising rates in the early stage of a bubble to head off future gains."

"The worsening real-estate recession is at the core of the economic slowdown and will probably prompt the Federal Reserve to lower interest rates next week and in future meetings, economists said."

"'We are not at the bottom in the housing market,' said Nigel Gault, director of U.S. research at Global Insight Inc. 'The Fed is trying to battle against the fundamentals which say housing is not going to recover until we have a substantial decline in prices.'"

The New York Times. "One day after the Fed slashed its benchmark interest rate to head off a possible recession, a small minority of economists warned on Wednesday that the central bank was in danger of invoking the same remedies that it did after the bubble in dot-com stocks burst seven years ago."

"Critics say the Fed’s attempted rescue looks uncomfortably similar to the aggressive rate reductions that aggravated the speculative bubble in housing."

"'We’ve literally forgotten that this is the very policy environment that led to the housing and mortgage problems in the first place,' said Michael T. Darda, an economist at an investment firm. 'We’re not going to see another housing bubble, but we could see more inflation.'"

"But other central banks are not following the Fed’s lead. Jean-Claude Trichet, president of the European Central Bank, strongly hinted on Wednesday that European policy makers would keep their benchmark rate unchanged.'

"'Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,' Mr. Trichet told the European Parliament. The Bank of England is not expected to reduce rates quickly either."

The LA Times. "In the 1990s, when Latin America and Asia were rocked by financial crises similar to the one now dogging the United States, Washington officials were quick with stern advice: Don't bail out distressed banks. Don't intervene when stock market and real estate bubbles pop. Let your overblown economies shrink to their natural levels."

"'It was all, 'You've got to be tough and take your castor oil,' said Joseph E. Stiglitz, the Nobel Prize-winning economist and former vice president of the World Bank."

"To date, U.S. officials haven't followed any of the advice they so readily dispensed to others. They have tried to aid troubled banks. They have slashed interest rates to help the struggling housing and stock markets. They have made it clear that they will go to extreme lengths to keep the American economy out of recession."

"But if the current prescription fails to provide long-term relief, what comes next? The answer, many economists say, could be that old castor oil."

"'People are going to have to buckle up their seat belts and expect some dicey economic times for much of the year,' said William Grenier, chief investment officer at UMBS Management, a $12-billion asset management firm. 'We're going to have to let the excesses wash out of the system.'"

"When Latin American and Asian countries found their finances in an analogous mess in the 1990s, Stiglitz said, 'we told them, 'You have to face the pain...You can't bail out people.'"

"Most of those governments eventually let the turmoil take its course. The countries recovered, but not before going through the economic wringer -- for periods that in some cases lasted years."

"America's big bankers were supposed to be 'so good at financial risk management, they could regulate themselves,' economist Stiglitz said. 'It turns out these guys did very bad risk analysis and have created a mess."

From CNN Money. "Without any intervention, an estimated 3.5 million homeowners could default on their mortgages in the next 2 1/2 years, says Mark Zandi, chief economist at Moody's Economy.com."

"Luis and Kelly Madera have done everything they can to save their house. They refinanced most of the $550,000 they owed on a risky, adjustable-rate home loan to a conservative 30-year fixed-rate mortgage. They emptied their savings accounts and pulled thousands out of their 401(k)s."

"But the couple, who have a 15-month-old daughter, may still lose their three-bedroom Northvale, N.J. home to foreclosure. With gross monthly pay of about $10,000 ($6,000 after taxes)...they can no longer keep up with the $4,100 house payments."

"And Kelly now wonders why she and Luis were able to get a mortgage they couldn't afford in the first place. 'I expected that if we were approved for a loan, we would be able to pay it,' she says."