Some housing bubble news from Wall Street and Washington. CNN Money, "Housing starts and building permits plunged in December much more than expected, resulting in a full-year decline in new home construction that was the sharpest drop in 27 years. And there is little sign things will get better soon. According to government data released Thursday, the full-year total for building permits posted the biggest drop in 33 years."

"The pace of housing starts in December dropped 14 percent to a seasonally-adjusted annual rate of 1.01 million in December, according to the Census Bureau report. That figure is down from the 1.17 million November reading, which was also revised lower."

"For the year, housing starts fell 25 percent to 1.35 million. That decline represents the biggest drop since the recession year of 1980 and the third largest drop since the Census Bureau started tracking this activity in 1959."

From Bloomberg. "Merrill Lynch & Co. reported a record loss after writing down $16.7 billion of failed investments. The writedown included $11.5 billion to account for the plummeting value of subprime mortgages and related bonds called collateralized debt obligations."

"Merrill also reduced the value of bond insurance contracts by $3.1 billion, saying provider ACA Capital Holdings Inc.'s credit rating had been slashed below investment grade, making it a less-reliable counterparty."

"The firm wrote down the value of other mortgages by $949 million. Its commercial bank units also took an $869 million charge for their investments in mortgages and related securities." "The writedowns by Merrill add to more than $100 billion of subprime-related losses reported since May by the world's largest banks and securities firms."

"Founder Charles Merrill, who burnished his reputation by telling customers to sell stocks just before the 1929 stock market crash, would be appalled at the firm's 'bubble mentality' of recent years, said Edwin Perkins, author of the 1999 biography of Merrill."

"'Things just get out of control, and once you're involved in it, there's no way to get out of it gracefully,' said Perkins."

The Guardian. "Stricken German lender WestLB will probably foot the bill for two structured investment vehicles (SIVs) by putting them onto its books, its chief executive told Reuters on Thursday."

"Alexander Stuhlmann said that it would probably take two further SIVs onto its books before the year end. 'It looks like that is the way it's going to be,' Stuhlmann said."

"These two SIVs, Harrier and Kestrel, have a combined volume of about $13 billion and such a move would erode the bank's capital base further."

The Wall Street Journal. "The great CDO debacle has claimed another German scalp. Hypo Real Estate said it would write down €390 million ($578.3 million) on its €1.5 billion exposure to U.S. collateralized debt obligations."

The Associated Press. "Regional bank Huntington Bancshares Inc. said Thursday it swung to a loss in the fourth quarter due to losses from a relationship with a subprime mortgage lender."

"Huntington's financial results for the quarter included $512.1 million in total provisions for credit losses as delinquencies and defaults rise, especially among mortgages given to customers with poor credit histories."

"CIT Group Inc., the largest independent commercial finance company in the U.S., reported a $123.2 million fourth-quarter loss because of bad home mortgages and the declining value of its student-loan business."

"The company said it had $1.03 billion in home loans in which payments were past due by 60 days or more as of Dec. 31, or 9.9 percent of its total unpaid balance. That compares with $538.8 million, or 4.9 percent, a year ago."

"The highest delinquency rates were in Florida and California, Chief Financial Officer Joseph Leone said on the call."

From MarketWatch. "Bank of New York Mellon Corp. said Thursday its fourth-quarter profit dropped from a year earlier as the company took charges on collateralized debt obligations and a conduit it sponsors."

"The latest quarter's results included charge of $180 million to restructure and consolidate the assets of a conduit it sponsors called Three Rivers Funding Corp."

"Bank of New York Mellon, the company that resulted from the merger of Bank of New York and Mellon Financial Corp., also took a $118 loss to write down the value of collateralized debt obligations, or CDOs."

"Moody's Investors Service and Standard & Poor's increased their scrutiny of bond insurers. Ambac and MBIA dropped in early trading and their risk of default soared after Moody's said it may cut Ambac's AAA credit rating."

"'No one knows when the end may be in sight, including the raters,' said Richard Larkin, a municipal bond analyst at JB Hanauer & Co.. 'The rating agencies have lost as much credibility as the bond insurers. Every time you turn around they're changing their minds about what's going to happen in the subprime-mortgage market.'"

"Losing the AAA stamp would cripple the bond insurers' business and throw doubt on the ratings of $2.4 trillion of debt the industry guarantees, causing as much as $200 billion in losses, according to data compiled by Bloomberg."

"Ambac yesterday reduced the value of some contracts on debt it guarantees by $3.5 billion in the quarter ended Dec. 31 and ousted CEO Robert Genader. 'This loss significantly reduces the company's capital cushion and heightens concern' about losses on mortgage-backed securities, Moody's analyst James Eck said in the statement."

"The risk of Ambac defaulting on its debt soared, trading in credit-default swaps shows. Investors demanded 22 percent upfront and 5 percent a year to protect Ambac's bonds from default for five years, according to London-based CMA Datavision. That rose from 15.5 percent upfront and 5 percent a year."

"MBIA's subordinated notes sold last week tumbled as much as 12 percent, bond traders said. Credit-default swaps linked to MBIA soared 9 percentage points to 25 percent upfront and 5 percent a year, according to broker Phoenix Partners Group. That means it would cost $2.5 million initially and $500,000 a year to protect $10 million in MBIA bonds from default for five years."

The LA Times. "Countrywide Financial Corp., stuck with tens of billions of dollars in "alternative" mortgages it can't sell, is pushing customers to refinance into traditional loans that can be easily unloaded by the struggling lender."

"The home-loan giant seeks to have $12 billion of these exotic loans refinanced into uncontroversial mortgages and has told its sales force to pull out all the stops to get borrowers to go along, internal documents show."

"It's unclear exactly what kinds of loans are in the $12-billion refinance mix, except that they are for less than $417,000 -- the limit for purchase by Fannie Mae and Freddie Mac."

"A senior Countrywide loan officer described them as a 'hodgepodge' that includes many adjustable-rate mortgages with optional ultralow payments made to borrowers with good credit who obtained them on a 'stated income' basis -- without documenting their earnings."

"'Countrywide is desperate to dump them to recoup the capital by refinancing them into marketable loans,' the loan officer said. 'It's the equivalent of a manufacturer who gets stuck with a ton of unsold merchandise after the Christmas season. So he says, 'Let's liquidate the inventory.'"

"The documents describing the program make clear that the replacement loans must be 'conforming' -- adhering to the standards of Freddie Mac and Fannie Mae -- or 'government loans,' the highly documented mortgages that can be backed by the FHA or VA."

"'You must figure out how to originate every loan as a Conforming or Government loan!' the instructions read. 'Ineligible Loan Types: Do not originate!!!'"

"If borrowers ask why they are being pitched a new loan, loan officers are told to reply: 'As you may have read in recent news articles, Countrywide is committed to ensuring our borrowers are in the best situation possible. We want to help you by determining if we can significantly improve your mortgage rate and payment.'"

"For Countrywide's $12-billion refinancing initiative, its success is 'by no means certain,' said Frederick Cannon, a mortgage industry analyst at Keefe, Bruyette & Woods."

"'It will be pretty tricky in this market,' he said. For one thing, Fannie Mae and Freddie Mac, after being burned by the national slide in home prices, now buy mortgages for no more than 75% of a property's value."

"'But I guess desperate times call for desperate measures,' Cannon said."

From CNBC. "Next Tuesday, the University of San Diego’s Burnham-Moores Center for Real Estate is holding its 12th annual real estate conference. The keynote speaker: Angelo Mozilo, co-founder and CEO of Countrywide."

"That drew the ire of locals who formed 'Disinvite Mozilo.' They planned to protest the event, feeling it inappropriate for a university to bill an event on the state of real estate around a man some consider part of the problem."

"But, Wednesday afternoon, USD announced Mozilo was pulling out. His choice, it appears, not theirs."

"'Due to unforeseen scheduling conflicts resulting from the proposed acquisition of Countrywide Financial Corp. by Bank of America, Angelo Mozilo, Countrywide’s Chairman and CEO, will not be able to participate in the conference.'"

"This week three major banks are scheduled to testify. Through Wednesday, Citigroup Inc. and J.P. Morgan Chase & Co. had 'fessed up. Banks ruined their balance sheets and market values for the sake of SIVs and MBSs."

"Merrill Lynch dove headlong into subprime with its purchase of First Franklin, a lender. Morgan Stanley bought hedge funds and stepped up its trading. Citigroup did it all. New York Stock Exchange member firms made $22.7 billion in 2006 before taxes, nearly double what they made the previous year. The party kept going in 2007."

"This week alone it's possible more than $30 billion in assets will be written down among three of the worst offenders."

"Banks need to start revamping how they evaluate credit, and regulators need to put specific penalties in place against credit professionals that knowingly pass off junk to investors."

"As former Sen. George Mitchell said in his report on drug use in baseball 'it is now time to look to the future, to get on with the important and difficult task that lies ahead. That is the only way this cloud will be removed from the game.'"

From Reuters. "Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot."

"Critics blame the ultra-low interest rate policies of the final Greenspan years -- when the U.S. central bank steered overnight federal funds rates to 1 percent and held them there for a prolonged period of time -- for fueling the housing bubble."

"'Too many bubbles have been going on for too long...The Fed is not really in control of the situation,' the Times quoted Volcker as saying, in clear criticism of both Bernanke and his predecessor Alan Greenspan."