To say the market has been sluggish would be an understatement. The main problem is sheer volume – a staggering 150,000 vacant housing lots across metro Atlanta are available, more than a decade’s supply at current absorption rates.

The median sale price for empty lots has plunged from $57,000 at the height of the housing boom in 2007 to $30,000 this year, according to Smart Numbers, a Marietta company that tracks the local real estate market.

“It’s going to keep going down, because we have too many lots, and there’s not enough demand,” said Steve Palm, the firm’s president.

To add to the woes, smaller banks are complaining that bigger banks that received bailout funds have an unfair advantage when it comes to getting zombie subdivisions off their books.

Large banks that have received federal bailout funds are better able to sell property at sizable losses, which pushes down prices for everyone, said Joe Moss, at Security Exchange Bank in Marietta.

“We don’t have the ability to take asset write-offs against taxpayer money like these larger banks have,” Moss said. “That’s really affected the market.”

This isn’t just a Georgia problem. As TWI has reported, the foreclosure pipeline remains clogged with a huge backlog of bank-owned foreclosures, or Real Estate Owned properties, that have yet to hit the market. The zombie subdivisions are part of this, and they are evidence that the housing market has yet to hit bottom. As Reuters noted recently, bank-owned foreclosures have created a shadow inventory that will hold back any recovery for months or years to come.

“Shadow inventory has the potential to give us another leg down on home prices during the second half of the year,” said Steven Wood, chief economist at Insight Economics in Danville, California.

“It appears that there is a significant amount of shadow inventory in the form of bank owned properties, which will continue to grow with the rising in delinquencies,” he said. It can take about 4-6 months for a house for be out of foreclosure and ready for sale.

Abandoned subdivisions and neighborhood blight caused by vacant bank-owned properties are part of the human cost of a looming shadow inventory, but the problem hasn’t gotten much attention. As zombie subdivisions pile up in Georgia and elsewhere, increasing the visibility of the situation, that could change. You can’t really miss them when you drive by — the half-built homes, the weedy areas where the community pool was supposed to be. In some cities, it’s even worse, with trashed and vandalized bank-owned homes dragging down the surrounding neighborhood. Somehow, however, Washington continues to fail to see it.

Imagine how the Federal Deposit Insurance Corporation must feel these days. The same agency that now says it needs to borrow $500 billion in emergency funds to take over failed banks collected no insurance premiums from most banks for nearly an entire decade, The Boston Globe reports.

The practice lasted from 1996 to 2006, according to The Globe.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending.

This practice doesn’t look too smart these days, now does it? Here’s how FDIC Chairman Sheila Bair explains what happened:

Last week, Bair wrote to Senate Banking Committee chairman Christopher Dodd, a Connecticut Democrat, that her agency could need more money because the existing fund “provides a thin margin of error” given the government’s responsibility “to cover unforeseen losses.” The March 5 letter, provided to the Globe, said the additional borrowing authority is necessary to “leave no doubt” that the FDIC can “fulfill the government’s commitment to protect insured depositors against loss.”

Bair said yesterday that the agency’s failure to collect premiums from most banks “was surprising to me and of concern.” As a Treasury Department official in 2001, she said, she testified on Capitol Hill about the need to impose the fees, but nothing happened. Congress did not grant the authority for the fees until 2006, just weeks before Bair took over the FDIC. She then used that authority to impose the fees over the objections of some within the banking industry.

“That is five years of very healthy good times in banking that could have been used to build up the reserve,” Bair, a former professor at the University of Massachusetts at Amherst, said in an interview. “That is how we find ourselves where we are today. An important lesson going forward is we need to be building up these funds in good times so you can draw down upon them in bad times.”

Yes, a very “important lesson.” Although, I think it’s a bit of an understatement, considering the FDIC — whose primary mission is to provide insurance for bank deposits — failed to, you know, collect insurance premiums from the banks it insures. Oh, well. Live and learn.

And we should probably hope that not too many more banks need to be taken over by the FDIC.

(Via Balloon Juice)

Now the U.S. government is in talks to significantly expand its ownership of Citi, the Wall Street Journal reports. And Shedlock, who writes the widely read Mish’s Global Economic Trend Analysis blog, thinks that move can’t come too soon.

From Shedlock:

Citigroup is a black hole, sucking in every dollar thrown at it and it still wants more. No amount seems enough to save it. Taxpayers have already guaranteed a whopping $300 billion dollars worth of Citigroup debt. Now, two months later, Citigroup is begging for still more capital, pretending that will save it.

And Treasury Secretary Timothy Geithner isn’t helping, Shedlock says:

Not only is Citigroup a black hole from which no taxpayer dollars can escape, but Geithner’s brain is a black hole from which no intelligent thought can escape.

How the hell can you preserve a system this way? The answer is you can’t. Nonetheless the Obama administration tries to end bank nationalization talk.

That isn’t working. Calls for nationalization keep growing, with everyone from Nobel Prize-winning economist Paul Krugman to former Federal Reserve Chairman Alan Greenspan joining the chorus. Shedlock points out that plenty of questions about nationalization remain, but there’s little doubt it’s the direction we’re headed in. There’s just no other choice. From Shedlock:

Geithner is attempting to bail out his banking buddies, no more, no less, and he does not give a damn what it costs taxpayers to do so. And while everyone and their brother has hopped on the Nationalization Train (please see The Nationalization Train Has Left The Station), I think there are at a bare minimum a half dozen questions that need to be addressed first (please see Nationalization Revisited).

Citigroup is struggling to remain independent even as it knows full well, that without still more government intervention, it is worthless. In fact, Citigroup is less than worthless because without more taxpayer cash infusions it cannot survive.

To hell with Citigroup. Bust it up and sell it. It’s the best possible outcome for everyone involved.

With banks facing stress tests this week that will reveal more about their bottom lines, look for nationalization in some form to become an accepted strategy. They’ll call it something else to make it more acceptable, like preprivatization. As Shedlock pointed out last year, the entire banking system is insolvent, not just Citigroup. It really doesn’t matter what they call it anymore. Nationalizing the banks may be the only thing left to do.

But not all bank fears may be justified. The once-obscure Federal Home Loan Bank system — which consists of 12 regional banks that are a privately owned, government-chartered cooperative, consisting of 8,000 member financial firms — is under scrutiny now because of potential losses on toxic mortgage-backed securities, as we reported Thursday. However, not all of the regional banks are the same. The New York Federal Home Loan Bank today pointed us to a statement on its Website noting that it isn’t expecting any losses.

The worry for the Federal Home Loan Bank system is that some investors are engaging in rumormongering, in an effort to short the stock of member banks.

As the financial crisis intensifies, so does the fear on Wall Street, whether it’s justified or not.