Her report yesterday had “investors” racing for the exits.

"Multitrillion dollars of loans were underwritten,” writes Whitney characterizing the root of the problem, “with the false assumption that home prices would go up in perpetuity on a national basis.”

Unfortunately for many… the assumption was false. The road to hell is paved with good intentions and false assumptions.

“We see no near- or medium-term comeback,” she says of the firm’s outlook. “We believe losses will only accelerate further and be far worse than even the most draconian estimates. Due to continued deterioration in consumer liquidity, we are raising our loss expectations significantly for the group and lowering our earnings estimates significantly."

As the crisis unfolds, it’s not just Wall Street fat cats getting the shaft. “There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness,” CNN reports. Counseling centers there have urged the city to lend parking lots during the night, as this atypical breed of homeless car owners needs a legal place to sleep.
 
"The way the economy is going,” said Nancy Kapp of the New Beginnings Counseling Center, “it's just amazing the people that are becoming homeless. It's hit the middle class." Knapp said these parking lot hostels are overwhelmingly populated by senior citizens and single mothers.

In a related domain, "From time to time we find ourselves wondering: How could all of this happen? This morning we have our answer: It was all a big mistake.

A “computer glitch” prompted Moody’s to incorrectly assign billions of dollars of worthless debt their coveted AAA rating. An investigation by the Financial Times reveals many of the AAA ratings Moody’s assigned in 2007 should have been “up to four notches lower,” but were left AAA... well... because the computer said so. [No wonder there has been a massacre in ABCP, CMO, and MBS type debt "securities", which perhaps should have been more accurately labeled "insecurities"].

Moody’s officials were well aware of the error, but did nothing. According to the salmon-colored rag, Moody’s fixed the glitch by quietly reducing errant ratings during their massive wave of downgrades late last year.
 
“It’s so absurd,” writes our managing editor, Chris Mayer, by e-mail this morning, “it might just work. I’m telling you… if a fiction writer wrote this story, we’d laugh our ass off. ‘That’s ridiculous,’ we’d huff, ‘no one would believe that.’
 
“You can’t make this stuff up.”  And that is why we see home prices plunging more over the next 3 years, even in coveted areas such as Santa Barbara, CA or Jupiter Beach/West Palm Beach, Florida, not to mention Portland, OR and Seattle, WA. These areas have been perceived as "immune" or "different" and up to recently that has been the case. But that is about to change over the next 18 to 36 months in a dramatic fashion.

No one knows for sure how bad the rest of the housing tragedy will be and how far home prices will fall from here. All we have are the clear and documented "early warning signals" and the evidence (see the graph at the top of this article) as well as many anecdotal pieces that foreshadow things to come.

Here's our official prediction, and it is worth about as much as you are paying to read this. House prices will fall another 30% as a nationwide average. In some over-inflated areas we might see another 50% from here, believe it or not. Our biggest regrets and sorrow are for those who will suffer as a result, and that is why we hope we are wrong