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Wall Street shakeout clouds housing picture

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Turmoil on Wall Street could mean lower interest rates for home buyers, but any benefit for housing markets could be outweighed by higher unemployment and a prolonged recession if the credit crunch becomes an even greater drag on the economy. Lehman Brothers Holdings Inc. today filed for Chapter 11 bankruptcy protection, and Bank of America announced a $50 billion deal to acquire another troubled investment bank, Merrill Lynch. Giant insurer American International Group Inc., which reportedly needs to raise up to $40 billion in capital to avoid a downgrade from credit-rating agencies, reached a deal with New York regulators to raise about half of that amount from its subsidiaries. As a whole, the day's news prompted a "flight to quality" by investors away from stocks and other risky investments into safer investments like bonds, pushing down long-term interest rates such as fixed-rate mortgages. Short-term rates soared, however, as banks became more reluctant to ...