The OTHER Big News Today

It's been an eventful day, but one blip that isn't making it to the top of the radar screen concerns the still-plummeting housing market. The Case-Schiller Index shows prices falling rapidly in March, and the market tracking the more adverse scenario seen in the Treasury's stress tests.

Prices keep falling for one major reason - foreclosures remain extremely high, and homebuyers are picking up those foreclosed homes first at fire-sale prices. We're seeing a new wave of foreclosures due to job loss and the economy, and even prime loans are no longer safe.

With many economists anticipating that the unemployment rate will rise into the double digits from its current 8.9 percent, foreclosures are expected to accelerate. That could exacerbate bank losses, adding pressure to the financial system and the broader economy.

“We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Economists refer to the current surge of foreclosures as the third wave, distinct from the initial spike when speculators gave up property because of plunging real estate prices, and the secondary shock, when borrowers’ introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

It's the big problem that was not solved by the relatively puny housing bill, stripped of the cram-down option. Since practically all of these loans were sold and tied up in mortgage-backed securities, in addition to just losing the value of the mortgage, new assets become toxic with each passing day. Considering that the last guy at Treasury, Hank Paulson, whose investment firm Goldman Sachs profited mightily from the MBS market, didn't even understand it, I hold out little hope for his successor to get a handle on it.

We're supposed to be dazzled by "green shoots" and see the economy returning to normal. Sorry, I still see a dying housing market, and that still threatens to bring down the whole system. Thanks to relatively strong policy responses, the event of a depression has probably been averted in most of the world. But we're going to be treading water for quite a while.

This New York Review of Books symposium, on a related theme, is a good read.