The U.S. economy isn't feeling the holiday cheer this year, as sluggish growth and the prolonged housing crisis fail to let up.

The rate of existing home sales plunged a record 8.6% in November, with falling prices faring no better, a real estate trade group said Tuesday.

The report is a blow to the Federal Reserve and Treasury Department, which have been acting aggressively to bring down mortgage rates and revive the U.S. housing market. Thus far, the effort has yielded mixed results at best, and the Census Bureau and realtors' figures are expected to reflect more of the same: declining sales.

Meanwhile, the National Association of Realtors said the median home price fell 13.2% on an annual basis, down for a fifth straight month to $181,300. It was the largest drop since the current data series began in 1968 and probably the largest since the Great Depression, said Lawrence Yun, the chief economist for the National Association of Realtors.

The pace of sales fell to a 4.49-million-unit annual rate. Economists polled by Reuters were expecting home resales to set a 4.90-million pace. October's figure was revised downward to 4.91 million, from 4.98 million.

"The quickly deteriorating conditions in the job market, stock market and consumer confidence in October and November have knocked down home sales to another level," Yun said.

The Reuters/University of Michigan Surveys of Consumers said its final index reading of confidence for December rose to 60.1, from November's 55.3. Don't get too excited, though: The report noted that, absent the gain due to unusually steep pre-holiday price discounts, the sentiment index would be virtually unchanged.

State TV says provinces are slating an eye-popping $1.5 trillion in stimulus spending. The reality is likely far more underwhelming.

More From Paul Maidment

If China knows about anything, it is propaganda. The considerable power of the state's propaganda machine is now being thrown behind the effort to stop the economy from slowing too much.

On Sunday, as Prime Minister Wen Jiabao was on the last day of a three-day tour of Shanghai and Zhejiang province exhorting local companies to show confidence that they would get through what he called "difficult times," state broadcaster CCTV was reporting that provinces across China would add 10 trillion yuan ($1.5 trillion) to the 4 trillion yuan stimulus package that Beijing announced earlier this month.

Ten trillion yuan is an eye-catching number. It is twice the level of all state spending in 2007, not to mention two and a half times greater than the central government's proposed package of investments in infrastructure and social programs over two years. Lest we forget, Beijing was meant to be financing only a third of that directly; the rest was to come from provincial and local administrations, and from state-owned banks and companies.

It has not been clear what was new money in the 4 trillion yuan package and what old, already budgeted for in the current five-year plan or earmarked for natural disaster relief, and just bundled up to provide an eye-catching headline number. The 10 trillion yuan suffers from similar opaqueness behind the headline number.

CCTV came up with it after doing the rounds of the provinces counting up spending plans. The two biggest sets it found were 3 trillion yuan in Yunnan in the southwest and 2.3 trillion yuan in Guangdong, the southern export hub. These, though, are spending proposals, not commitments.

What we suspect is happening is this: after three years in which provincial governments have found financing infrastructure projects difficult as central government tried to stamp down on inflation by restricting credit, they are now rushing to find projects with which to lay claim to the 80 billion yuan not yet allocated out of the 100 billion yuan Beijing wants spent in the final quarter of this year. Those with the fattest pipeline, local officials believe, have the best chance of securing funding.

CCTV interviewed one local official in Hubei province who boasted how his colleagues had put in extra hours over the past two weeks as policy had suddenly reversed from curbing inflation to slowdown prevention, and had come up with 100 infrastructure and local develop projects to pitch. The official said their marching orders were to find already started projects being held back for lack of capital, or new projects that could give a quick boost to the economy.

Citigroup Shares Keep Sinking

The bank's board meets as Wall Street wonders whether CEO Pandit can withstand the pressure, or if he'll be forced into a deal or U.S. rescue

By Mara Der Hovanesian

Citigroup's shares continued their breathtaking decline on Friday, Nov. 21, despite a broader market rally, indicating that time is quickly running out for Chief Executive Officer Vikram Pandit.

Pandit continues to fight mightily to restore confidence in the market. He pronounced that he has no intention to break up the global bank and that he has enough capital to withstand a tough consumer recession. But with the stock finishing down another 20%, to 3.77, from its 4.71 close on Nov. 20, speculation continued to mount that he will have little choice but to cede the bank to government control.

A dwindling market cap means Citi (C) faces extreme difficulty in either its ability to raise capital or to market itself in a sale. "When you have a decline in the share prices of this magnitude and depth, it is a signal that the company is going under," says Martin Weiss, founder of Weiss Research. "The share price is providing the clearest canary in the coal mine."

Weiss says it is now up to the Treasury Dept. and the Federal Reserve to figure out if they want to nationalize Citigroup, à la Fannie Mae and Freddie Mac. "Someone is going to have to step up and say 'enough.'"

If Citi were to require a government rescue, it would be by far the largest bank failure in history. Citi has $2 trillion in assets, or approximately six times more than Washington Mutual's and three times more than Wachovia's.

Derivatives Drama

Moreover, the prospect of a failure by Citi poses far greater challenges to regulators, due to its massive derivatives holdings. Those derivatives are essentially side bets on interest rates, currencies, and other markets, as well as bets on the probability of defaults by other large corporations (credit default swaps). At midyear—June 30, 2008—the Office of the Comptroller of the Currency says, Citi's primary banking unit, Citibank NA, held $37.1 trillion in total notional value derivatives, including $3.6 trillion in credit default swaps. Those swaps in recent months have proven to be the most dangerous category. In contrast, Wachovia bank, bought out by JPMorgan Chase (JPM) in a deal brokered by the regulators, had only $4.4 trillion in total notional value derivatives, among which $404 billion were in credit default swaps.

Although the notional value overstates the true market risk of derivatives, another oft-underestimated risk is a bank's exposure to the possibility that some of its trading partners might default on their side of the transaction. For each dollar of risk-based capital, Citibank was exposed to $2.58 in such credit risk on June 30, according to the OCC. In contrast, Wachovia's exposure was 52.7¢ on the dollar, or only about one-fifth of Citi's in proportion to capital.

Not everyone has given up hope. Mike Mayo, bank analyst at Deutsche Bank (DB), issued a note early on Nov. 21 saying there is still fundamental value at Citigroup that justifies a $9 price target. He estimates that Citi has $100 billion of cushion to cover an estimated $50 billion on losses.

In a town hall meeting on Nov. 17, Pandit warned the market that losses in the bank's consumer loan portfolio could rise between $1 billion and $2 billion each quarter from now through the first half of next year—far less than Mayo's figure. But the market was struck more by what Pandit did not say: The bank classified some $80 billion of distressed assets into "held for investment," a subjective accounting category that allows the bank to set aside risky and hard-to-value assets in hopes for a recovery.

Eleventh-Hour Partner?

Many doubt those assets will recover and assume they will eventually be another hit to the bank's balance sheet. Stuart Plesser, an equity analyst with Standard & Poor's, says investors "looked suspiciously at those assets [and figured] they were not priced sufficiently."

Some Wall Street analysts are still floating the idea that Citi may find an 11th-hour business partner. Goldman Sachs (GS), Morgan Stanley (MS), and even American Express (AXP)—Citi founder Sanford Weill's dream acquisition in the old days—have been raised as potential suitors. Still others are circumspect about the timing: "I don't believe there is any other financial institution in the world today that has the capital or is crazy enough to take on Citigroup," says Weiss.

Pandit, the board, and other Citi executives were huddled in meetings since early Friday morning. But with the headwinds of the market, their choices are dwindling.

"This is a different ball game we're in; this is moving into a lack-of-confidence game," says Plesser. "We're talking about the fear of institutional trading partners taking deposits and wealth management clients fleeing, which would remove the value of that business. If that is occurring, we have to have a plan to sell before it loses its value. At these levels, it's out of their hands."