"...The sorry tale of a subprime fraud officer who defrauded himself...and Florida swampland bought for $16 an acre..."

WHAT'S NOT to love about falling real estate prices?

Bill Gross at Pimco, the world's largest bond fund, forecasts "an ongoing bond bull market of still undefined proportions" thanks to the subprime collapse in the US.

Gross thinks lower house prices will force the Fed to cut Dollar interest rates. His models put US rates back around 4%, down from the current 5.25%, if the Fed wants to stabilize national home prices.

Could it really prove that straightforward? Cutting interest rates in half at the start of the '90s did nothing to stop London house prices falling by one-third. Slashing Japanese lending rates down to zero in 2001 left Tokyo real estate in freefall for a further five years.

No matter. If the Fed doesn't unleash more cheap money quick, warns Gross, US home prices may well drop by one fifth.

The Fed best hurry up! Home prices in Irvine, California have already sunk 17% since June. The town just happens to play host to three of America's largest subprime lenders. In fact, half of the 20 biggest US subprime lenders are based in the Sunshine State.

And Bloomberg notes - wearing a straight face, no doubt - that foreclosure rates for subprime loans in urban California may rocket 22% this year.

If this was how you always thought the Ponzi scheme of subprime lending would end, the only surprise might be that anyone else is surprised.

Indeed, Charles Ponzi himself - the most famous "pyramid" scamster of all time - tried to pull off a real estate con. After skipping bail in Massachusetts for pulling in $1 million per week at the height of his 1920 postage stamp scam, Ponzi took an assumed name, Charles Borelli, and got down to Florida. There he set about buying swamp land for $16 per acre. He then sliced each acre up into 23 lots, and sold it on - for a mere $10 per piece - with the promise of a $5.3 million return inside two years.

Like all pyramid schemes, the new money paid off the early investors. And like all credit bubbles, it needed ever more fools - with ever more cash to throw at the scam - to keep the fraud running. The bubble was sure to burst in the end. It just couldn't last, not even if it took in the entire nation first.

"Ankur Kumar, 27, worked in Ameriquest's fraud-detection department from mid-2004 until last May," reports Bloomberg, "when he lost his job as part of the company's layoffs. In his new career as a fitness trainer, he hopes to have an income of $30,000 this year, compared with more than $40,000 when he worked at Ameriquest."

Poor Mr. Kumar! He failed to detect the fraud when he filled out his own mortgage application. Hoodwinked by cheap money and mugged by the mortgage industry, he signed up for an exploding ARM mortgage that ate 90% of his gross income even before he lost his job with Ameriquest.

Now his over-sized house costs him nearly $3,000 per month - interest only. So to help cover his mortgage, he rents out three of the house's five bedrooms. But that only pulls in half of what he needs.

His exploding ARM, meantime, will blow up in October. He hopes to defuse it before then, refinancing elsewhere. Maybe Ben Bernanke or Alan Greenspan will shine a torch and point out which wire to cut.

"I'll probably have to do something risky, to be honest," says Kumar. But honesty might prove the last thing he needs.

"There is something else in play now that resembles in part the Carter Administration's Depository Institutions and Monetary Control Act of 1980," says Bill Gross. "Lender fears of potential new regulations can do nothing but begin to restrict additional lending at the margin, as will headlines heralding alleged predatory lending practices in recent years.

"After doubling over 18 months between 2005 and the first half of 2006, non-traditional loan growth has recently turned negative, and lenders' attitudes are turning decidedly conservative."

Less conservative attitudes still litter the internet, daytime TV schedules and local radio, of course. Low.com promises rates below 4% per year on a loan of $200,000. Unless it's using long-dated Yen to fund these advances, you might wonder where-in-the-hell they can find such cheap money today.

Either that or they're lying about how much the repayments will cost.

"At this juncture," said Ben Bernanke to Congress on Wednesday, "the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

He used that same line to little effect last month. But now, "although the turmoil in the subprime mortgage market has created financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear."

Really? What's clear so far is that sales of new homes are falling fast, and prices achieved at sale have slipped 2% from this time last year in the major metropolitan areas on average. No, the United States doesn't appear to be suffering a nationwide housing slump - not yet. Charlotte, North Carolina, enjoyed an increase in prices. But it was alone amongst 20 metropolitan areas.

Eleven cities, according to the S&P-Shiller index, showed a year-on-year decline. Boston fell 5.6%. Detroit lost nearly 7%.

Still, Dr. Ben's keeping good company by pretending that marginal homebuyers only cause trouble at the margins of the real estate market. For over in Tokyo, the Bank of Japan is also trying to wish away its own recent property data, too.

After 17 years of depression, at last, land prices in Tokyo finally turned higher in 2006. But the trouble is, rather than just picking up, land prices in some parts of Tokyo leapt 46% higher.

If you like your irony triple-thick, slurp on!

"We aren't yet in a situation in which land-price gains warrant concern of excessiveness," said Toshihiko Fukui, governor of the BoJ to the Japanese parliament Tuesday. "But we'd like to keep a close watch on them."

Commercial land prices in Japan's three biggest cities rose 8.9% in 2006. The fastest property gains came in the Omotesando Hills of central Tokyo, a retail and residential development that opened in Feb. last year. Amid the developers' scramble, the city's tallest building is now due to open on Friday. A 42-storey skyscraper will open in front of Tokyo Station next month.

Still, there's a long way to go before Tokyo, Osaka and Yokohama catch up with Glasgow, Baltimore, Derry, San Diego, Pula, Beijing, Buenos Aires, Reykjavik, Jo'berg, Auckland and the rest of the planet.

Japanese land values for commercial and residential property now trade for half the price of their 1989 peak. But what a peak! And what a mess Japan's had to endure trying to unwind it ever since.

That the US is about to suffer the same fate looks more than likely - along with Spain, Croatia, Australia, New Zealand, the UK, South Africa and everywhere else that cheap money has fed the Ponzi scheme of real estate speculation.

But that cutting US interest rates might prevent the bubble bursting - badly - seems wishful thinking at best.