Enjoy the rest of this year because 2008 is going to be a tough one, advises Sherry Cooper, chief economist at BMO Capital Markets.

In the last third of 2007, financial markets have had a rough ride. “With writedowns mounting and estimates of as much as $200 billion to $400 billion more ahead of us, recession forecasts are now commonplace for the U.S.,” Cooper says in a research note.

“The latest shoe to drop was the downgrade and delisting of bond insurer, ACA, which exposes the likes of Merrill Lynch, CIBC, and many others to massive further losses,” Cooper explains. “Indeed, the bond insurers were a critical component of the triple-A ratings of many CDOs. Without them, many more of these obligations will be downgraded, triggering the sale of these bonds by investment pools that are precluded from holding less-than triple-A debt, exacerbating the already dire situation.”

Cooper says it’s unlikely that a large financial institution will fail given the willingness of central banks and finance departments to come to the rescue; “the real losers will be the shareholders and American homeowners, and the consumers and businesses looking for credit at reasonable cost.”

“Greed, wishful thinking and downright blind-eyed optimism are to blame, as human nature explains the processes of mob psychology and irrationality that triggers all bubbles,” Cooper adds. “What is to come is the impact on spending, saving and investment by consumers and households, first in the U.S., and then in the rest of the world.”

“Household wealth in the U.S. has been decimated, yet, according to a recent poll, most American homeowners still believe the value of their homes has been unaffected. The real-side impact will come when job losses mount,” Cooper warns, adding that this may begin in the first quarter of 2008.

“The prospects of U.S. recession are rising fast and the next pipedream to burst will be the theoretical decoupling of the emerging economies from troubles in the U.S. economy,” Cooper concludes. “Take time in the remainder of this month to relax and enjoy the holidays, because 2008 is going to be a tough year for financial market participants.”