What's next for the economy?

Here's Atrio's thought, and he is a real economist. (I agree with him in spite of his profession.)

I suspect we may be about to enter the "other shoe drops" phase, whether that's a severe labor market contraction, major financial institution going belly up, or commercial real estate market crash...

Another interesting point Atrios makes.

"This I didn't know.

Delinquent loans create huge liquidity problems for loan servicers like Countrywide because the servicer becomes a middleman between the borrowers and the people who bought their loans.

When the borrower misses payments, as a record number of Countrywide's borrowers are doing now, these contracts require that the company advance those missed payments to investors until it's clear that the amounts won't be recovered.

With Countrywide having a $1.5-trillion servicing portfolio, that puts tremendous strain on its cash flow, Cannon said.

There are a lot of weird incentives here. A company like Countrywide generally doesn't want to foreclose on underwater homes, on the other hand if they have cash-flow problems they'll need to push those foreclosures through so they can stop making payments.

Innovation!!"

So homeowners are missing payments in record numbers, and since CountryWide sold their mortgage to investors as part of collateralized debt obligations, CountryWide has to continue making the regular payments to the investors until the home is foreclosed making it clear that the missed payments will not be recovered. Those payments come directly out of CountryWide's capital or retained earnings. CountryWide bleeds money until the home is foreclosed.

We know the Recession is here. The question now is who are the casualties going to be, and when they go, how much damage will their disappearance cause?