In the banking sector, nonsense continues to spew about the worst being over. The reality is that not even half the pain has been witnessed nor suffered yet. Paul Krugman expects to see a $1000 tag on bank losses, but worse, perhaps 20 million homeowners by year end mired in negative equity, equal to one quarter of the total count of homes in the nation. He sees home equity value lost will easily reach $5 trillion ($5000 billion). He expects the current USEconomic recession to extend into 2010 or perhaps 2011, identified by a pickup in employment. That gives the USFed a long time to continue cutting official interest rates, and the gold bull roaming through broad pastures. In synch with my forecast, he expects the USFed will stop cutting interest rates again and again down to 0%, mimicking the Japanese Zero Interest Rate Policy (ZIRP). A year ago, my urge was to claim this forecast, but instead a 1% forecast was suitable. That is certain to cause havoc with the USDollar and major US banks. No doubt about it, the key factor is the housing decline, which in no way has stabilized. Worsening home collateral will be a continuing hot knife to cut into bank balance sheets via the mortgage bonds arteries.
In the housing market, up to 40% of home sales in Las Vegas and San Diego involve foreclosures. No stability whatsoever is visible, as inventory is supplied from failed homes amidst failed lives. National sales assistance agencies report that new supply arrives faster than they can be sold, like twice as fast. First American CoreLogic estimates that foreclosed properties accounted for 493k of all homes on the market for sale in January, up from 231k one year ago. That makes for an 11% ratio now versus a 6.7% ratio a year ago. Both Merrill Lynch and Goldman Sachs expect continued significant housing price declines in the current year. The result will be much more bank writeoffs, steps into insolvency, requests for USFed aid, and possible high profile bankruptcies.
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Source: http://www.financialsense.com/fsu/editorials/willie/2008/0408.html 
