May 31--ECONOMIC slug- gishness brought on by weakness in the credit markets and falling housing prices has a long way to go before things improve, Whitney Tilson and Glenn Tongue argue in their excellent new book.

Tilson and Tongue's "More Mortgage Meltdown" describes what led to the current economic situation, in what stage we are now, what's to come and how investors can profit from it.

The authors are the managing partners of hedge-fund firm T2 Partners LLC and the Tilson Mutual Funds. Tilson is a frequent financial media commentator who helps run a semiannual value investing seminar and publications on that topic.

Tilson's frequent interviews and written columns are always engaging and thought-provoking, and the book is no different.

Its description of how the current economic malaise arose -- through a housing bubble caused by irresponsible lending and borrowing, low interest rates and global liquidity, lax rating standards, Wall Street greed and a lack of effective government oversight -- is well-trodden ground.

The authors also review the now well-known fallout from the ensuing housing bust: skyrocketing foreclosures, falling housing prices, sluggish sales, a global credit crunch and the downfall of numerous financial institutions.

The book is most original in its opinions on what happens from here and how investors can profit.

Tilson and Tongue argue that the mess is far from over in housing. They say the worst of the fallout from subprime lending -- mortgages that went to people with weak credit scores -- has probably passed, but much pain remains for prime, Alt-A, jumbo and home equity loans as unemployment rises and adjust-able rates reset.

They argue that housing prices nationally have another 10 percent or so left to fall. They say government efforts to stop the bleeding and keep borrowers in their homes will help, but not cure, the problem.

Housing loans aren't the only problem. Losses are forthcoming in commercial real estate, credit card debt and more, taxing the resources of the nation's banks. They argue that total losses might amount to nearly $4 trillion, higher than most estimates. They don't see the economy truly recovering for a few years.

That said, Tilson and Tongue argue that there are opportunities for stock pickers to profit, as the bad news is priced into most stocks while some have fallen further than justified. Among the stocks analyzed are Berkshire Hathaway, American Express and Resource America. They're betting on continued pain for bond insurer MBIA Inc.

The book concludes with an interesting analysis of Wells Fargo, which the authors shorted at $30 a share but then went long on at $10. They argue that Wells took on both great risk and opportunity when it bought Wachovia. The result is a financial powerhouse earning tens of billions of dollars a year, but also one saddled with comparable levels of losses from bad loans.

Wells is painted as being in a race against time as it tries to earn enough money with new business to balance out the forthcoming loan losses from past activity. Tilson and Tongue are betting that Wells will come out of it stronger than ever, but say there's a real possibility that it could become a Citigroup-type situation.

Overall, the book is well worth reading.

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