Well, let’s start off with real estate:

First, we have an article asking whether the Federal reserve is refilling the housing bubble. Normally this would not merit comment, but look at the link. Look at the author. Look at the title. It’s Lawrence Yun, chief economist for the National Association of Realtors, and it has the word “bubble” in the title.

When the NAR is calling it a bubble, it’s a bubble.

We also have reports that people are defaulting on subprime loans before they reset, which implies that these people so overbought their houses, that they can’t even afford the “teaser” rates.

We also have single family home starts dropping to a 17 year low, though there has been a pickup in condo and apartment construction (not sure how much is the former, and how much is the latter).

We also have Mortgage applications plummeting 22%, as rates rise in the face of the fed cuts, because no one trust to lend anymore.

The fed is “pushing on a string”.

Finally, we are starting to see Foreclosure tourism, with bus tours of foreclosed homes becoming a regular event in Florida.

It’s an attempt by some realtors and speculators to get the market moving again. Isn’t gonna happen.

In terms of more personal finance, we have an explosion of people tapping their 401(k) accounts for living expenses.

Yep, those private accounts to replace social security sound like such a good idea. As I’ve said before, it’s like eating your seed corn, which is what these folks are doing.

On a more general macroeconomic note, inflation is up, with the CPI rising 4.3% in 2007, and prices rising at a 5% annual rate in January.

On top of all this, the Federal Reserve has cut its forecast for economic growth.

Considering the fact that the official CPI understates inflation, we are probably closer to an 8% inflation rate (prices doubling every 9 years), so I’m calling stagflation, which seems a no brainer, even without oil hitting another record, with it peaking at trading at $101.32/bbl and closing at $100.74/bbl….No…wait….that’s two records.

In terms of the financial establishment recognizing that the problems are far deeper and broader than previously understood, we have Martin Wolf of the financial times saying that, “America’s economy risks mother of all meltdowns“, and we have Portfolio.com wondering if the basic model used to evaluate the complex instruments in the big sh$#pile, or more generally, the prices of options, the Black Scholes Pricing Model, is simply inaccurate, which would render their prices unknown. It’s literally look at the chicken entrails to figure out the prices time.

Basically, the model falls apart, and has always fallen apart:

Good theory. The glitch was discovered only after the fact: When a market is crashing and no one is willing to buy, it’s impossible to sell short. If too many investors are trying to unload stocks as a market falls, they create the very disaster they are seeking to avoid. Their desire to sell drives the market lower, triggering an even greater desire to sell and, ultimately, sending the market into a bottomless free fall. That’s what happened on October 19, 1987, when the sweet logic of Black-Scholes was shown to be irrelevant in the real world of crashes and panics. Even the biggest portfolio insurance firm, Leland O’Brien Rubinstein Associates (co-founded and run by the same finance professors who invented portfolio insurance), tried to sell as the market crashed and couldn’t.

This is what has happened with investment banks and leveraged loans, where they have been left holding the bag on $197 billion in loans to people like private equity buyout specialists that they cannot resell.

In the ever popular world of the bond insurers collapsing, we have Moody’s predicting a $7-$10 billion hit for banks as a result, though I would add at least one zero to that total.

As a result, a unit of private equity firm KKR cannot refinance, and has delayed repaying loans as a result.

Compounding this is the fact that the proposals to split the insurance companies into separate Municipal bond insurance and sh&^pile insurance is making it much more difficult for them to raise the capital they need to stay afloat.