Housing Mess

File this under the "too big to fail" category.

The financial squeeze on banks and is continuing to get worse and worse. Home mortgage defaults are about to peak (March 2008 should be the peak). Note that peaking means we're not even half way yet, but the entire credit and financial system is wheezing like an old emphysemic. Recent interest rate cuts (see: throw money at the problem) have really had little to no effect in relaxing the credit problems and fear reins in the financial markets. Bernanke:

Federal Reserve Chairman Ben Bernanke called Tuesday for more action to prevent distressed homeowners from falling into foreclosure, including a suggestion for mortgage lenders to reduce loan amounts to provide relief to struggling homeowners.

"This situation calls for a vigorous response," Bernanke said in a speech to a banking group in Florida.
...
On the idea of cutting mortgage values, Bernanke said, "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure. "

It is incredibly ironic on a political level. It now looks highly likely that the Bush administration (see: conservative, free markets) is increasingly under pressure to create a "New Deal-type" bailout of home owners in order to save the banks. And that's what will happen. Look in the next weeks for the administration to put forth bailout 2 which will include some sort of relief for homeowners who are all to ready and willing to simply leave the house keys on the counter and walk away.