It's about banks and housing, stupid!

Many pundits--from stock analysts to economists to the news media to OBama Administration officials--have developed blind spots that prevent a measured plan for reviving the economy. It is as if they have forgotten what sparked the current economic recession. In case there is still doubt: the crisis was fueled by a collapse of the overheated housing market which in turn led to huge losses at banks. Yet precious little has been done to address those two sectors, except for bank bailouts and feeble attempts to prop up homeowners, which have utterly failed to substantially improve the economy.

Instead many pundits, including Wall Street, are focused on unemployment numbers. However, as most economists will tell you, unemployment is a lagging indicator of economic improvement. Historically, unemployment improves after the recession ends. The recession won't end until housing and banking improve substantially. So before you fall for the rosy economic predictions of many pundits, consider these facts:

1. New homes sales are at their lowest levels since the Commerce Department began tracking the numbers in 1963. The Mortgage Bankers Association's purchase index for new and existing homes fell to its lowest level since 1997, for the week ended February 19. Does that sound like recovery?

2. An astounding 140 banks went under last year, more than four times as many banks as collapsed in the entire eight-year period from 2000-2007. Forty-five banks failed in just the last quarter of 2009. According to the Federal Deposit Insurance Corporation, another 702 banks are listed as currently in trouble. The number of problem institutions on the FDIC's list is nine times greater than it was in 2007. Does that sound like an improving situation?

Now, let's examine why these two sectors have not improved, but gotten steadily worse.

Sales of homes have been driven by bargain hunters leaping on foreclosed homes or short sales. Everything else has practically dried up. Historically, home sales are driven by job and income growth, migration of employees, low interest rates and consumer confidence. By any measure, none of those drivers exist today, except low interest rates. That alone will not move the needle by much.

The banking situation may at first seem to have improved. After all, the biggest banks have clawed back from the financial cliff, thanks to huge federal bailouts that have ballooned the deficit. However, many pundits have missed one big looming negative: commercial real estate. Occupancy rates are falling, values are sinking and the ability of developers to meet mortgage payments and loan covenants have dipped.

If that isn't bad enough, banks and lenders are also facing the another wave of home foreclosures as the last of those budget-busting adjustable rate mortgages wash through the system. Despite all the administration claims it has done to stabilize the home market, foreclosures continue to grow with each passing day. In some large cities, the percentage of homes that banks have file foreclosure on or repossessed is two-to-six times the national average, according to First American CoreLogic, a housing data firm. In addition, there are now 3.5 million mortagages at least 90 days delinguent. The pending catastrophe will have a seismic impact on the financial system and the economy.

Until there are realistic solutions to address the housing market and bank losses, nothing will change in the economy. You can bank on that.