After I posted my
Ticker on this subject the Fannie report came out and
immediately proved up what I had said - the tests
are a sham:
According to The Fed’s "More Adverse" scenario prime delinquencies will reach 3-4%.
Well, how about this?
![](http://market-ticker.denninger.net/uploads/fannie.serendipityThumb.png)
(Click for a larger image)
Note that the PRESENT serious delinquency rate on Fannie’s credit book for single family homes is at 3.15%, up from 2.42% last quarter.
What’s worse is that a lot of the paper Fannie holds was written before the bubble. If you look at only the "bubble-era" paper (e.g. ALT-A) or even prime paper written in 05, 06 and 07 the numbers are going to be far worse.
We have the largest lender in the United States reporting current "prime" serious delinquencies, almost all of which will end up as foreclosures, equal to the most serious stress tested level right now and twice the so-called "baseline" scenario.
Furthermore, Fannie’s credit-related expenses nearly doubled quarter/over/quarter and was 2/3rds of the full year 2008 expense in one quarter alone!
Folks, there is absolutely nothing to support any claim that these "stress tests" were or are realistic when market performance in the nation’s largest lender and one that allegedly has written all "prime" mortgages states (not "suggests") that their credit book delinquency rate has reached the "more adverse" stress level already.
Nowhere in the "mainstream media" (e.g. CNBC, etc) has this been mentioned but it is literally right in your face while reading the Fannie quarterly report.
Everyone is entitled to be optimistic.
But nobody, especially not anyone in the government, has the right to intentionally mislead the markets and investors as to the validity of what they’re allegedly doing.
Given the Fannie report, which was known to the government (since it is under conservatorship) for a significant amount of time prior to being filed, there is absolutely no excuse whatsoever for The Fed’s "Stress Test" report to be published without a footnote indicating that the "most adverse" metrics had been proved met by the largest prime mortgage lender and guarantor in the United States already.
Investors deserve a government that does not intentionally mislead them.
If you are buying into this rally and the recovery of the banks based on the so-called "Stress Tests", you have been lied to and must consider the "severe" stress scenario as the "baseline", which implies that should the economy deteriorate further the banks will not make it with their alleged "capital cushions."
Period.
This is an outrage; we are no longer just talking about my estimates, Roubini’s estimates or even the IMF’s estimates.
We are now talking about actual reported financial results.
In short, we have all been had.
Again.
Disclosure: Short Ben Bernanke, The Fed and Treasury