Paul Krugman does a good job at analyzing the financial arcane and picturing its deficiencies. This weekend in the New York Times, he said the following:

To understand the gravity of the situation, you have to know what the Fed did last summer, and again last fall. As late as August the favorite buzzword of financial officials was “contained”: problems in subprime mortgages, we were assured, wouldn’t spread to other financial markets or to the economy as a whole. Soon afterward, however, a full-fledged financial panic began. Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a little-known but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system…. The Fed responded by rushing money to banks, and markets partially calmed down, for a little while. But by December the panic was back…. A report released last Friday by JPMorgan Chase was even blunter. It described what’s happening as a “systemic margin call,” in which the whole financial system is facing demands to come up with cash it doesn’t have.

But as we told you a last week, the danger has increased as mortgage lenders see that more borrowers give up when finding out that they owe more than their homes are worth; they simply mail in the keys, rather than try to work out a new payment plan. Some even abandon their homes before other assets:

“It’s the American way of deleveraging,” said Jochen Felsenheimer, a credit strategist at Unicredit in Munich. “First you sell your house, second you sell your car and in the end you also sell your TV set.” (more - 03/06)

The steadily fall of the US Dollar continues to be a matter of concern, at this pace the breaking point isn’t far away. Please, visit a site delivering currency trading charts, and you will see that the dollar index has plummeted from 77 a month ago to below 73 now. And it is not going to get any better since the consumer confidence is at its lowest since 2002, AP reported.

While 8 million households may lose their homes over the next 3 years, Bank CEOs are being blasted for their obscene payouts:

The report comes a day before Rep. Henry Waxman is expected to grill Angelo Mozilo, chief executive officer of Countrywide Financial Corp., former Citigroup CEO Charles Prince and Stan O’Neal, former CEO of Merrill Lynch & Co. In calling the hearing of his Oversight and Government Reform Committee, Waxman, D-Calif., said he’ll examine if their “level of compensation is justified.”… The report said Mozilo received more than $120 million in compensation and stock sales last year. O’Neal left Merrill Lynch in October with $161.5 million in stock, options and retirement benefits, after leaving the brokerage with its biggest-ever quarterly loss and Prince left with a $10 million bonus, $28 million in stock and options and $1.5 million in other perks when he left Citigroup last fall, according to the report. Representatives for the three companies did not immediately comment…

But this is just the tip of the iceberg. Catching all the economic terrorists involved - from real estate agents to appraisers and other middle men - may be proven difficult to achieve. Fraud compounds the housing crisis :

Arthur Prieston, chairman of the Prieston Group, which provides mortgage-fraud insurance and training to lenders, said that “at least 30 percent of the loans out there contain some form of misrepresentation. But because lenders often have to sell off properties quickly to cut their losses, we will never know exactly how much mortgage fraud has been committed,” he added. Prieston estimates that mortgage-fraud losses were around $4.2 billion for 2006, adding that figures for 2007 “will be much higher.” …

In Europe, illusions are too coming to an end.

Report author Michael Ball said: ‘2007 will probably go down in history as the year that the great European house price boom ended. ‘The year started so strongly on a wave of optimism but ended bleakly for housing markets in virtually every country. ‘Purchasers could no longer afford to buy at ever-rising interest rates. Housing markets either froze as a result or prices started to slide.’..

In economics everything follows the demand and supply. We can see now why it is extremely dangerous to corrupt people’s mind, to trick them into believing that the ’sky is the limit’.