So What About Credit Risk, Bernanke?

[AllentownJake]

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?

More at Link

http://market-ticker.denninger.net/archives/1457-So-What-About-Credit-Risk,-Bernanke.html