So What About Credit Risk, Bernanke?

80% of the MBS market eh?

So that would mean that you're taking on 80% of current credit risk, right?

Given that, what 'ya got to say about this?

And....

There's nothing that rattles a banker's heart like the prospect of credit losses when you're 80% of the market.  I mean, that could be a problem, no?

Some $1 trillion promised to be bought or owned at this point in MBS and related securities, with an awful lot of those securities "secured" (in theory at least) by severely-underwater property for which there is no possibility of recovery of the note.

Hell, we even have the FHFA saying that you should be able to refinance out to 125% LTV, which of course leaves you at 131% underwater (remember real estate commissions?) instantly, never mind legal and rehabilitation costs.

Re-default rates are extremely high too, meaning that these so-called "modifications" aren't working.

I'm just kinda curious what Bernanke thinks he's going to do when the credit losses that are embedded in these securities, which he is currently hiding through his refusal to be audited freely, wind up becoming known?

Then what Bernanke?  You gonna try to print out of that one too?

Let's cut the BS: This entire gambit by The Fed has been bad decisions layered on top of bad decisions, all items in a blown PhD thesis that has now been proved to be incorrect.

Credit demand declines weren't arrested and improved; credit demand has instead collapsed.

Credit quality wasn't buttressed and improved, it has instead collapsed.

Credit risk wasn't mediated, it was shifted and then papered over, an act that in any society that valued the rule of law would be called out as what it is - fraud - and there would be hundreds if not thousands of shiny new pairs of handcuffs in use.

Congress has been lied to, the American People have been lied to, and now the FDIC is "suggesting" that banks be paid (instead of paying) for their own insurance - yet another piece of arm-waving that in fact results in there being no insurance at all (since one cannot write insurance against oneself; that's a scam, not an insurance transaction.)

The bottom line here is that this entire scheme turned on a bad premise - that the pronouncements of 2007 would prove out - "subprime is contained" and "there will be no recession" - remember?

Well, those pronouncements proved false. 

Now Bernanke is waving his arms around screaming "look over there!" in a desperate attempt to avoid admission of the facts:

• He said that "house price appreciation reflects strong economic fundamentals", when that was a lie.  House price appreciation was a speculative asset bubble that he and Greenspan intentionally created.
• He said that "subprime was contained" even though it was blatantly obvious that literal millions of fraudulent mortgages had been handed out not to "subprime" borrowers but rather to middle class and better Americans - fraudulent lending that The Fed was responsible for intentionally refusing to regulate.
• He said "there will be no recession" even though the ultimate collapse of the subprime and ALT-A housing bubble was mathematically assured at the time he made the statement.
• Now he claims that "the banking system has been stabilized" when in fact all that has happened is that the banks have continued to lie.  What, for example, is Wells Fargo's exposure to CDS that Wachovia wrote ON THEIR OWN CREDIT RISK IN PICK-A-PAY OPTION MORTGAGES, a blatantly outrageous "self-insurance" deal that is currently being carried OFF BALANCE SHEET TO HIDE THE LIABILITY?
• The Fed is allegedly the regulator charged with preventing predation by lenders and financial institutions toward citizens yet they allowed and still allow the banking industry to re-order transactions and not call overdraft coverage "a loan" in order to avoid state usury laws as well as truth-in-lending disclosures that would show the actual effective interest rate on such "loans" was in excess of 1,000%!

Despite all these pronouncements and claims that "they've saved the world" the facts are exactly the opposite:

• The bad debt remains in the system and there is effectively no forward credit demand.  All sectors of credit demand are either flat or shrinking except federal government issuance (which Bernanke is monetizing in a desperate attempt to prevent market prices from coming to the forefront.)  The credit intermediation system remains hopelessly clogged - there is essentially no securitization issuance going on in other than government-backed sectors, as the duped simply refuse to buy (and get screwed) a second time.
• The entire rally off the March lows has been driven by blatant monetization of government and GSE debt.  You can even find exact "pumps" in the stock market that are correlated nearly to the minute with the release of the Fed "POMO" monetization activities.
• The banks have not been forced to disclose their actual marks against these "assets" nor their valuation methodologies.  We know for a fact they are playing games because in places like California as much as 90% of the foreclosure "auction" properties are pulled by the banks within a day or so of the purported auction - yet they remain in inventory, and when banks blow up there are "magic" 30, 40, 50 or even 60% losses in asset classes they hold that suddenly appear on their balance sheets that were not there just a day before.  Colonial is a prime (but hardly the only) example, where a blended 37% loss "suddenly" appeared out of nowhere - for a bank that was at its last quarterly report considered "well-capitalized."
• Sales tax receipts continue to crater, freight volumes are in the toilet, international container shipping prices are for all intents and purposes flat on their back, car sales following CFC's expiration have collapsed (now indicated at under 9m units/year)  and despite a claim that we lost only 200,000ish jobs last month the Household Survey showed nearly a million more people in total out of work last month - when one counts those who gave up!  NONE of these "high frequency" indicators have turned around in the economy - all indicate further economic deterioration, NOT RESUMPTION OF GROWTH.

This sort of game has a "shelf life" after which it begins to rot and the smell drives everyone from the room - or the market.

Either we start to see real indications of improvement in the immediate future or the rot of lies will, quite soon, become apparent - and this time the government and Fed cadre of lies will be entirely ineffective - after all, you can fool most people once but after the second or third screwing most folks wise up.

And that, my friends, very well might force Bernanke's credit risk - the risk he wants nobody to know about - to become realized.

Oops.