Now, it's fairly safe to assume that housing prices in CA will decline even further because of the unemployment rate there.

So I think that Krugman is right to reject Geithner's notion that what we're seeing is irrational pessimism...

Also worth noting: the banks are assigning values to these toxic assets that far higher than even optimistic projections about what they may be worth.

this tells me one of two things must be true: a. the potential buyers are too stupid for their own good, and don't recognize a great deal when it's slapping them in the face., or b. those assets are still wayyyyyyyyyyyy overvalued.

i'll take b, for $500 alex!

you can say all those wonderful, built houses are reasonably priced all day long, if that makes you feel better. if no one's buying them, they aren't.

  In any event, the bridge exists and has some value. It's not the cost to build the bridge or the amount of principal and interest outstanding, but it has some  substantial value. All value is not gone simply because  obligor can't meet his obligations.

   Multiply this by a few million borrowers and add the bundling into derivatives and this roughly describes the current situation.

  With one bridge and one group holding direct debt againsr it, it's still largely speculation to assign a value. With millions of properties and numerous parties holding portions of aggregate debt  in a variety of different security types each including a different mix of many speciifc properties-- which are vary in quality from fully performing and likely to continue to do so throught he full range down to already defaulted and secured by an asset worth a small fraction of the debt, determining a value is at best educated guesswork.

   I'm no more convinced by those who claim Geithner et al premising it all on substantially over valuing as I am by the assurances a value with an accept range of error can and will be determined.

Its not the housing bubble" bursting that we're witnessing. What we're witnessing is the "American bubble" bursting.

The chickens have come home to roost. Excesses of every type, held up by a long gone, "America is #1" fantasy.

What Obama, Geithner, et al are desperately trying to stave off is the ever clearer realization that our standard of living is in free-fall. Where it will settle is anybody's guess.

Years and years of living beyond our means simply had to have a "settlement date." From completely outrageous, and unnecessary military spending, to Corporate incomes in the tens of millions of dollars; what were we thinking?

Michelle Obama's garden is a cryptic metaphor for the future we all have to look forward to.

The priests would say, "The Gods aren't talking to us.  And this is because you let the mouth of our idol statue get dirty.  Go scrub the idol's mouth and it will start talking."

The priests hoped that things would turn around while the tribe was busy scrubbing.

2010-2011 will see far more rate resets for Alt-A and Option ARMs. See this chart. Option ARM resets in 2010-2011 are going to bring major pain. And for Option ARMs, it doesn't matter if interest rates are low.

This means housing prices will continue to fall. We are not near a bottom and we will not see one until 2012 at the earliest.

2) We have not solved the problem of home foreclosures.

Bankruptcy judges still cannot modify mortgages in bankruptcy proceedings. Servicers still can't find the loan documentation, in many cases, to prove they have the legal right to foreclose. And we still have not solved the CMO problem, wherein a single mortgage has been sliced and diced so many times it's impossible to track down all the note owners to get them to agree to a loan modification. Until these problems are solved the foreclosure problem will continue to dump families on the street, housing prices will drop, and the value of these "toxic assets" will continue to circle the drain.

41% is just gone.  Mortgages that fall within that 41% are worthless.  Securities that are collateralized by mortgages within that 41% are worthless.

  For example, it's safe to assume the majority of the securities are -- well down the chain--- backed by finished homes which have substantial value. It's also likely that banks can capture some amount of excess liability over foreclosure sales from some defaulters.

  On the other hand, do we know whether  some substantial amount of the debt is against unfinished or even non-started construction backed by loans?

  We also have the "tautological" or "symbiotic" aspects of the situation. we know the worse the general economy gets the lower the capturable value of the toxic assets but how do we know how bad the general economy will get before recovery and how long until recovery begins?

  The only consensus appears to be that in  the broadest sense that the government must take extraordinary action. There is also strong consensus it must act quickly, but that is obviously something that hindsight may show down the road equals rashly.

The stress test should do a triage between banks that are illiquid and undercapitalized but solvent given the provision of capital and liquidity and those that, under a reasonable stress scenario are effectively insolvent. Those that are insolvent should be nationalized.