Wachovia drops a credit bomb and Fannie loses big bucks

Wachovia became the latest financial firm to enter the profit confessional booth this morning. It said its credit losses from the mortgage market have surged to $1.7 billion in the current quarter. It is setting aside up to $600 million for bad loans, and it said that CDOs linked to subprime mortgages lost $1.1 billion in value in October alone. In a conference call, the company is saying that the housing market is deterioration "very quickly," with Florida and California markets in the worst shape.

Meanwhile, at Fannie Mae, losses are mounting fast. The company's third-quarter net loss more than doubled to $1.39 billion, fueled by large losses on derivatives. The firm is finally getting caught up on its financial reporting, after being delinquent for ages due to accounting problems. Falling home prices and rising mortgage delinquencies helped drive credit losses up by $1.6 billion to $2 billion in the first nine months of 2007.

Who's next on the firing line? How much deeper does the rabbit hole go? All I can say is that we had the biggest housing and mortgage bubble in modern history. And now, we're experiencing one of the most severe busts. The financial toll is going to be large, very large.