The San Diego Union Tribune asked the company what they were thinking:

“We want to reduce our inventory,” Connal says. “We're prepared to bite the bullet. ... Right now, every builder I know is selling houses at less than it costs to build them.”

Connal insists the sales prices are legitimate. The first few row homes sold for about $540,000. The market subsequently went south, and the price dropped to $400,000. Several of the 2-acre estate homes closed escrow for between $1.6 million and $1.8 million.

Apparently, they've only gotten one offer — but instead of a BOGO, the buyer wants to trade his current house toward one of Michael Crews'. They're thinking it over.

Buy $1.6 million estate, get a row home for free [SDUT]
Buy One Get One Free [Austen Real Estate Blog]
Michael Crews

"I repeatedly submitted proposal to help address the problems. Time after time, Congress chose to block them," he said.

Bush called on Congress to send him sensible and effective bills to keep the country moving forward before taking questions from reporters.

Asked if he was premature in saying the economy is not in a recession, Bush said "the average person doesn't really care what we call it."

"The average person wants to know whether or not we know that they're paying higher gasoline prices and they're worried about staying in their homes," he said.

Bush says Congress blocking progress [CNN]

The report goes into detail about how each of the states is dealing with the mortgage meltdown. Everyone is affected, even those without risky mortgages.

More than 40.6 million homes across America are projected to lose value because of subprime foreclosures in their communities, and foreclosures may cost neighboring properties up to $356 billion in home value over the next couple of years, says the report. Also sobering is the news that foreclosure starts involving prime adjustable-rate mortgages increased 158 percent in one year.

The report also claims that the mortgage meltdown isn't a regional problem for hard-hit states like California, Nevada and Florida. It's national.

As Exhibit 1 illustrates, nearly every state is feeling the impact of the crisis. A report by the
MBA in March 2008 showed that in 47 states and Washington, D.C. mortgage loans entering foreclosure as of December 2007 had increased by at least 20 percent since December 2006.

Only three states—Alaska, Montana and Vermont Vermont—did not experience at least a 20 percent increase in foreclosure starts; less than 1 percent of the American population lives in those states.

"Nothing of this scale has happened since the Great Depression," Chief Executive Kerry Killinger said at WaMu's annual meeting. "This is the toughest credit cycle I have seen in my years in the industry."

A Loss and a Shake-up at Washington Mutual [NYT]
(Photo:Maulleigh)

Vigeland: What are the traditional definitions of a recession first and also a depression? How are they different?

Reich: Well, a recession is now officially defined as two quarters — that is six months — where the economy suffers negative economic growth, where the economy actually shrinks. Now, a depression... there is no official definition of a depression. I think one reason is that economists and other policy makers just don't like to use the word — it's such a bummer — but in common parlance it means a very, very severe recession: high unemployment, businesses pulling way, way back from investing and all of the other things that happen during a recession, just more so.

Vigeland: Do those definitions still hold in what we call the new economy? I mean, you mentioned these two consecutive quarters of negative growth. We have not seen that yet, but so many people are saying we are in a recession.

Reich: Yes, I think people are assuming we're in this recession because all of the indicators are trending in that direction: unemployment seems to be moving upward and then businesses are pulling back. You know, if you're somebody like me who looks at the economic data that come in over the transom, it's just bad news.

Vigeland: It certainly feels like that, but how deep and long would the current recession, assuming we're in one, have to be to turn into a depression?

Reich: Well, again, because there's no fixed definition of a depression, nobody really knows. I would say that unemployment would probably have to reach 8 or 9 percent — we haven't seen that kind of unemployment in a long time. Businesses would have to contract considerably in terms of their economic activity before people would start using the "D" word. You know, here's the problem Tess: some of this is psychological. Undoubtedly, the tendency people have to go to the stores and buy things has a lot to do with how much money they have in their pocketbooks and how much they can get access to credit, how easily they can, but it also has to do with their expectations of the future. When consumer expectations drop to the cellar as they are now dropping, the economy has a tendency to follow, so there's a kind of a downward cycle that sets in.

Reich: Well, let's put it this way: it's new to the extent that the extend to which Americans are dependant on credit is new. I mean, Americans are deep in debt; we've never had this much indebetedness and as a result, when they pull back from being in debt, that is new simply because we've never been this deeply in debt. Here we get into a paradox, because what's right and proper and appropriate for an individual — spending less money — if everybody start's being very fiscally responsible together, then we are in a very severe recession.

Vigeland: What's the best thing then that consumers — our listeners — can do to avoid really panicking over the current financial situation when they hear that things really are quite bad.

Reich: Well, the first thing is not to panic. Don't take money out of your savings accounts, our of your 401(k)s — that will just make the situation worse. But I would say if you are earning some more money and you want to save a little bit, probably don't put them into stocks right now. I'd also say that it does make sense for the individual consumer to get out of deep debt, to just be a little more prudent.

You can listen to the full interview here.

Recessions and depressions 101 [Marketplace]
(Photo:Library of Congress)

A CNN/Opinion Research Corp. poll found that 41% of respondents plan to use their rebates to pay off bills, and 32% will put the money in savings. Just 21% of those polled intend to spend the money, while 3% said they will donate the extra money to charity.

Jared Bernstein, an Economic Policy Institute senior economist, notes that taxpayers have in the past spent half to two-thirds of their rebate checks. However, he points out that the current economic conditions are unique.

"We've never done this in a period when American households are so deeply indebted," he said. "While [saving the rebate] is a valiant thing to do, what you want them to do is spend it."

Rebate checks won't get spent [CNNMoney] (Thanks, Matthew!)
(Photo:stirwise)

The Fed says:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

While the cut was larger than the Fed's normal quarter-point moves, investors were initially disappointed that the central bank did not cut rates by a full percentage point.

The Dow Jones industrial average fell 100 points within two minutes of the Fed's mid-afternoon announcement but it then resumed climbing and was up nearly 200 points within the first half-hour after the announcement.

Fed Cuts Rates by 3/4 Percentage Point [Portfolio]
Fed Cuts by Three-Quarter Point, Suggests More Reductions Likely [Wall Street Journal]
Federal Open Market Committee Statement [FED]

From Bloomberg:

"We're seeing people give up even before they get to the reset because they couldn't afford the home in the first place,'' said Jay Brinkmann, vice president of research and economics for the Washington-based trade group."

It comes down to an overstretching of buyers to get into homes they couldn't afford and an overextending of credit by lenders who were more willing to take risk,'' Brinkmann said.

U.S. Mortgage Foreclosures Rise as Owners `Give Up' [Bloomberg]
(Photo:Getty)

Initially, the lenders gave the impression that the majority of these loans were being given out to sophisticated investors who couldn't document their $500,000 income and had better places to put their money to work. Clearly this wasn't the case as we are seeing that 71% of the people are electing for the lowest of the low payments. Of course when the market in California was ripping it up by seeing 20%+ appreciation each year, making the minimum payment made sense because you were going to sell in 1 to 2 years and pocket the change. Heck, it was cheaper than renting!

Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' Bernanke said in a speech to bankers in Orlando, Florida, today. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

Bernanke's call goes beyond the stance of the Bush administration and previous Fed comments. By comparison, the central bank's Feb. 27 report to Congress called for lenders to ``pursue prudent loan workouts'' through means such as modifying mortgage terms and deferring payments.

The Fed chief highlighted the threat posed by home values falling below mortgage balances, something Treasury Secretary Henry Paulson played down yesterday. Bernanke said the ``recent surge'' in delinquencies has been ``closely linked'' to the slide of home equity.

Bernanke Urges Banks to Forgive Portion of Mortgages (Update3) [Bloomberg]
(Matt Stroshane/Bloomberg News)

Gasoline prices, which for months lagged the big run-up in the price of oil, are suddenly rising quickly, with some experts fearing they could hit $4 a gallon by spring. Diesel is hitting new records daily and oil closed at an all-time high on Tuesday of $100.88 a barrel.

The increases could not come at a worse time for the economy. With growth slowing, high energy prices that were once easily absorbed by consumers are now more likely to act as a drag on household budgets, leaving people with less money to spend elsewhere. These costs could exacerbate the nation's economic woes, piling a fresh energy shock on top of the turmoil in credit and housing.

"The effect of high oil prices today could be the difference between having a recession and not having a recession," said Kenneth S. Rogoff, a Harvard University economist.

Oil Hits a High; Some See $4 Gas by Spring [NYT]
(Photo:greefus groinks)

"No one has a crystal ball to look into the economic future, but we know the economy will be a critical factor this year," Wal-Mart CEO Lee Scott said in a recorded call discussing the retailer's results..."Some customers were a little more cautious about their spending in January," Scott said. "That is why we will continue to be diligent in improving our business in every way."

"I feel we are well positioned for an economic downturn," Scott said. "Our low prices and low-cost business model should give us an advantage over other retailers if things get more difficult for consumers."

Wary of economy, Wal-Mart cautions on '08 [CNNMoney]
(Photo:RowJimmy)

PREVIOUSLY: Walmart CEO Optimistic About Christmas Because Broke People Shop At Walmart

In a separate ABC News/Washington Post poll released earlier this week, 59 percent of Americans said they think the economy is already in a recession.

Confidence measures are generally viewed as a barometer of consumer spending, which accounts for two-thirds of the U.S. economy. However, economists note that consumers do not always act in accordance with their statements to surveys.

The ABC/Washington Post consumer confidence survey was based on a sample of about 1,000 interviews conducted in the four weeks ending Feb. 3 and has a margin of error of plus or minus 3 percentage points.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today's policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Federal Open Market Committee Statement [FED]
(Photo:Getty)