About four months ago the headline of the financial news was Bank of America buys Countrywide Financial for $4 Billion. The news had a temporary soothing effect on the markets, which were being roiled by the housing bust.

But then an unexpected news story appeared the other day:

Bank of America Corp is likely to renegotiate its deal to buy Countrywide Financial Corp down to the $0 to $2 level or completely walk away from it, said Friedman, Billings, Ramsey, [analyst Paul Miller] ...

Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity ...