Fannie Mae Fumble

Fannie Mae announced a $25.2 billion quarterly loss for 4Q '08, bringing 2008 losses for the mortgage giant to nearly a staggering $60 billion.

The company, a crucial source of funding for mortgage lenders, said it would draw down $15.2 billion of its $200 billion federal line of credit. In return, the government will receive preferred shares.

And it gave a dour view of the housing market -- saying it expects peak-to-trough price declines to be in the 33% to 46% range, up from the 27% to 32% range it gave in the previous quarter. For 2009, it predicts home values will drop 12 to 18%.

And that's bad, bad news. If housing prices end up where Fannie Mae predicts, off 40% from 2005-2006 highs (and another 15% drop this year alone) then there will be no recovery at all in late 2009...and there may not be any real recovery in 2010 either.

In other words, the "lost decade" scenario is growing ever closer. We're maybe a bit more than halfway through the housing collapse now, with another 18 months to go or more possibly before the housing market stabilizes. That would delay recovery until 2010 or even 2011, and even then recovery would be excruciatingly slow.

It's going to be a long, ugly period in world history here, folks.