U.S. home prices fell a record 17.5 percent in ten large markets, Standard & Poor's/Case Shiller Index of new and existing homes shows. The Case Shiller indices don't track Philadelphia, but other East Coast cities fell less than 10 percent, except for Washington, D.C., down 16 percent. Data here.

  The euro fell 2.5 percent vs the U.S. dollar, its biggest one-day drop ever, after Germany, Holland-Belgium, and the UK had to bail out banks, raising fears of more losses to come. The dollar rose by comparison because U.S. bank losses are better understood. Bloomberg story here.

  Student lender SLM Corp. (Sallie Mae) may be pointing the way to the end of the bond market crisis, without a government bailout.
  For the first time since the credit crunch started in the spring of 2007, student lender SLM Corp. (Sallie Mae) is "testing the waters" of the asset-backed securities market, laying plans to sell asset-backed securities -- which is to say, bonds backed by loans to students, Friedman Billings & Ramsey Co. analysts Matt Snowling and Bill Jackson wrote in this report, citing an SLM filing this morning with the Securities and Exchange Commission. 
  That means more student loans, but also more expensive student loans. Snowling and Jackson say SLM will be pricing loans at Libor (the international prime rate, around 4 percent) plus 9.8 percent, vs. Libor plus 8.5 percent last year. And since Libor has been increasing, that means rates for students will be higher.
  It also means SLM will demand better credit for borrowers -- and it's providing "significantly more data on existing loan performance" to would-be loan buyers.
  All in all, that's a model of how the bond market crisis will end: Prices will rise; issuers will disclose more about the value and danger of their securities; customers will pay more; and hopefully we'll all be a little wiser.

   UPDATE: Paul Perrault is Sovereign Bancorp's new CEO-designate, and the bank is "well-capitalized" despite the volatile bank-stock markets, the Reading- and Boston-based bank said in this statement. Inquirer story here. Sovereign shares rose but remained below last week's levels.

   EARLIER: Is Sovereign's new CEO "too late"?  Sovereign Bancorp's hiring of another New England banker, Paul Perrault, to replace Joseph Campanelli is "too little, too late," writes Sandler O'Neill bank analyst Joseph Fenech in this report. "New management must contend with inherited problems that continue to carry substantial risk," he added.

   "Most uncertain to us," Fenech wrote, is how long Sovereign will stay independent, or whether major shareholder Banco Santander Central Hispano SA will grab (or dump) share "to protect its investment."

   Normally the hiring of "respected" executives like Perrault and new Sovereign CFO Kirk Walters (they ran Vermont's former Chittenden Bank together) "would clearly suggest the company is not for sale in the near term." But times aren't normal; Wachovia Corp., Washington Mutual Corp., and Merrill Lynch all changed bosses as they tried to stay independent; but "the naming of a prominent CEO does not seem to ensure independence, if market forces deam otherwise."

   Sovereign Bancorp shares are worth around $5 a share, triple yesterday's closing price, even with recent mortgage-related losses, writes analyst Matthew Schultheis of Boenning & Scattergood in a note to investors.

   But, Schultheis warns, "investment in SOV shares at these levels presents a great risk that the company may go through a government assisted sale at depressed prices." That's what happened to Washington Mutual Corp. last weekend: Federal Deposit Insurance Corp. protected depositors, other banks and the public, but nothing was left over for shareholders (and not much for bondholders.)

   Sovereign Bancorp workers are expecting a new boss after the Wall Street Journal wrote this morning that the board is meeting to review a proposal to hire Paul Perrault, ex-CEO of small, former Chittenden Bank in Vermont, to replace Boston-based Paul Campanelli as Sovereign's new CEO. WSJ story here. 
  
   Earlier this year, Sovereign hired ex-Chittenden CFO Kirk Walters to replace Mark McCollom in that job. It's not clear what makes Chittenden such a hotbed of management talent for a company with offices in Boston, New York and Philadelphia.
  
   Sovereign claims to be based in Philadelphia, but its main offices are in Reading, where founder Jay S. Sidhu built and ran the bank until he was forced out in a shareholder rebellion two years ago. Sovereign ranks sixth in the Philadelphia deposit-banking market, but it's an important mortgage lender in the city's middle-class suburbs. 
  
   Sovereign, the largest surviving U.S. savings bank since Washington Mutual Corp. failed last week, has suffered from debt left over from previous takeovers, bad investments in Fannie Mae preferred stock, and the home loan slowdown. Shares lost most of their value in yesterday's market free-fall, but have doubled so far this morning as analysts at Boenning & Scattergood and Fox Pitt Kelton called it a bargain at recent prices.
 

   The London inter-bank offered rate -- LIBOR -- which has replaced U.S. prime rates as the most popular benchmark for the price of bonds, loans, and money in general, hit a record 6.88 percent (up from 6.45 percent) after the U.S. House of Representatives rejected its leaders' plan for the government to buy unwanted loans and other assets. 
  The rate rose because banks are less confident that, if they lend each other money, they're going to get it back as quickly as they want it. 
  If this keeps up, credit cards, home and business loans are going to cost a lot more, and the economy will slow down, even if Ben Bernanke's Federal Reserve tries to cut U.S. interest rates.
  Bloomberg story here.

  The vote against the bank bailout in the House of Represenatives: 205 yea, 228 nay.
  U.S. avoids "slippery slope to socialism," says U.S. Rep. Jeb Hensarling, who rallied opposition. 
  And the stock market heads down the slippery slope to Heck: the S&P 500 is off 7 percent. 
  Bloomberg story here.

  "The biggest problem now is a lack of confidence," said Rick Weiss, analyst at Janney Montgomery Scott, which had rated Sovereign "buy" just this morning. "I think we're past the point where investors are looking at fundamentals. Mutual funds are trying to get out before the quarter end, no matter the price, it looks like. It seems as if this is feeding on itself."
  Sovereign, of Reading, is the biggest bank still based in eastern Pennsylvania. National City Corp., Cleveland, is also down more than 50 percent today; it's one of the nation's largest business banks, with commercial lending and (ironically) distressed-asset offices in the Philadelphia area.