A trifecta of economic bad news

Following yesterday’s European and Asian plunge, Wall Street dropped more than 300 points in its first hour of trading, to fall below the 12,000-point mark.

The Fed, in little more than panic mode, cut the funds rate not a half point, but three-quarters of a point.

As pointed out before by me and better people, the flip side is that this drives the dollar further into the tank, and, if the immediate problems of this recession are beyond Fed reach, risks causing some sort of stagflation.

The panic was reflected in finance stocks with housing exposure. Bank of America and Wachovia reported almost zero profit in last year’s fourth quarter.

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Recession more likely — and around party convention time

Moody’s expects a nationwide housing price drop of 15 percent by 2010 and a California/Florida drop of as much as 30 percent, with full recovery not until 2010.

House prices are forecast to fall 13% from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15%, the report said.

Punta Gorda, Fla., and Stockton, Calif,, are the hardest hit markets in the United States, with price declines from peak-to-trough forecast at 35.3% and 31.6%, respectively.

"This is the most severe housing recession since the post-World War II period," Moody’s Mark Zandi told Reuters.

Remember, the freeze doesn’t apply to already-delinquent homebuyers, nor does it apply to upside-down loans. And, at a 15 percent drop, not to mention 30 percent in California and Florida, many loans will be upside down.

As for a recession possibility?

The same Moody’s report says housing will knock 1.5 percentage points off economic growth next year, most of that by before the end off summer.

So, a recession — right around the Republican and Democratic national conventions. And, a “reset freeze” that’s like a Band-Aid on a horror flick chainsaw wound.

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