Ok, let's start with Fannie.

They have a horrific loss, right? Fair value of their assets cut by 2/3rds? Dilution out the ying-yang?

So why does the stock take a rocket ride north?

Simple - OFHEO (their regulator) loosened their capital constraints.

Now wait a second. Fannie did say that their credit losses were expected to significantly increase through 2008 and 2009!

So let me see if I get this right - Fannie is going to increase leverage into a declining credit environment - lever up into worsening economic conditions for their business?

Is it just me or does that sound particularly insane to anyone else? Never mind the idea of buying a stock when the company says they're going to pull something like that?

That, by the way, sparked a broad-based rally in the markets. It wasn't strong, but it was there, and it turned what was a red tape into a green one.

The idiocy of this market knows no boundaries.

Let me remind you that if you're betting that the government will "bail out" Fannie if they blow up, that they "bailed out" Bear Stearns too, and it got you 1/10th of your stock price in the process. How's a 90% loss - or worse - sound? Not good? Then what the hell were you doing buying the stock?

"Heh, the house is on fire!! I know - I know - let's put it out with this bucket of GASOLINE!"

Now let's talk about the next ticking nuclear device - FHLB "advances". The FHLB system is the Federal Home Loan Bank system, and has been the funding source for hundreds of billions of dollars worth of mortgages since the secondary markets seized - including a huge amount out to Countrywide, which of course, as we know, made a lot of "liar loans" and didn't tell anyone that's what they were. The other big participants? Banks like WaMu and Wells. Oh boy, all the poster children of California and Florida.

I wonder how much RISK the FHLB system is under right now? They do have a "superlein" against the assets of said banks....... but......

Minyanville updated their famous ALT-A tranche from WaMu. I'll let the delinquency numbers speak for themselves, because quite frankly, I'm close to speechless:

• January - 19.3% delinquent, 13.5% foreclosed, 1.83% REO
• February - 22.69% delinquent, 11.62% foreclosed, 3.56 REO
• March - 25.3% delinquent, 13.35% foreclosed, 4.44% REO
• April - 29.07% delinquent, 13.87% foreclosed, 6.21% REO

Notice a few things - this cesspool was originally nearly all "AAA" credit, although only 11% of the loans were "full doc". In one year, 30% of the loans are at least 60 days behind.

Absolutely nothing without full-documentation should ever be rated AAA. Do we need any more evidence? Mish does a nice job of digesting the rest - have a peek.

Now where is the action by the bond rating agencies to withdraw all ALT-A ratings?

Oh, we wouldn't do that now that we've been found to be massively wrong, would we?

And where is Congressional (or prosecutorial!) action to go after these clowns who claimed this was "AAA" credit when the very standards necessary to rate that credit were simply invented rather than measured? You know, made up out of whole cloth? Manufacturered? Or, to be less polite, "fraudulently inflated"?

Speaking of cesspools, there is some resistance building to all the "bailout NOW!" screaming coming from Congress on housing. At least in a few places:

"The Bush administration signaled it will veto foreclosure-prevention legislation being advanced by House Democrats that would offer states $15 billion in grants and loans to buy and refurbish abandoned homes."

and

"The House tomorrow will also consider Frank's plan to let the Federal Housing Administration insure up to $300 billion in mortgages after loan holders agree to reduce the principal. That legislation drew sharp criticism today from House Republicans at a news conference in Washington.

'What we're talking about here is a $300 billion bailout for those who were scamming the market,' said House Minority Leader John Boehner, an Ohio Republican. The lawmakers offered an alternative plan including a one-time homebuyer tax credit of up to $10,000."

My God, Mr. Boehner has a brain! Congratulations dear Sir; you're one of the few.

Institutional Risk Analytics penned a beautiful note on Countrywide being acquired, echoing what I (and today, Chuck Schumer!) have said about valuation:

"Given the outline above, our view is that the equity of CFC is worth $0."

The full analysis is worth a read; its pretty much how I see it. Contingent liabilities are going to be insane and BAC has to be nuts to accept that risk. I wouldn't.

Countrywide, for its part, is now "promising to improve" its foreclosure and billing practices. Uh huh. The allegation leading to this "promise" comes from lawsuits and complaints over their conduct in bankruptcy court when homeowners run out of rope! The not-amusing part of that, of course, is that a big part of how those people wound up in bankruptcy in the first place were loans that they claim they didn't understand and shouldn't have been sold, as they were clearly unsustainable. I've spilled my share of digital ink about the stupidity of allowing DTIs beyond 36%, qualifying on other than the fully-amortized rate, and what the true intent of these "loans" was - what you won't find me doing is shedding a tear for these clowns now that some of the blowback is hitting them in the face.

Next up, UBS is now facing a tax-evasion probe (!)

"One senior bank employee was 'briefly detained' by U.S.