Check it out.

Now here's the ugly with that. Any of that used toilet paper, er, "AAA" subprime bonds now ain't "AAA". This means they're ineligible at the Fed Window, which means there may be a hellfire storm of "putbacks" coming out of the NYFed the next couple of days with demands for replacement of those instruments.

This could get quite amusing among the various banks that have undoubtably posted that trash against Treasury loans!

And it gets better! National City (NYSE: NCC), which yesterday announced a huge capital raise and monster dilution got hit yesterday with a "putback" notice on First Franklin:

"National City Corp. reported Monday it has received an indemnification claim notice alleging that the Midwestern bank breached the terms of a September 2006 pact selling its First Franklin home mortgage unit to Merrill Lynch & Co."

"Heh jagoff - that damn thing's ticking! Take it back!!!!!"

The open question is whether the "accredited and institutional investors" that bought that NCC offering knew about this up front. Wanna bet the answer is "no"? I'd be more than a bit pissed on this one, given that First Franklin was one of the "famous" subslime originators..... anyone wanna bet they're getting buried with loan putbacks due to fraud-at-origination?

Next up we have Target who seems to have a small problem with their credit-card portfolio....

"April 22 (Bloomberg) -- Target Corp., the second-largest U.S. discount chain, said it wrote off 8.1 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century."

Heh, that's great no? Psst - it was 6.8% in February, which is a 16% increase. In one month. Oi.

Ambac posted a loss roughly double its stock price, or $11.69/share. Is that good? More importantly their business has basically disappeared:

"Ambac, the second-largest bond insurer, was ``severely impacted'' by the plunging value of mortgage-related guarantees, interim Chief Executive Officer Michael Callen said in the statement. New business slumped 87 percent as states and municipalities shunned its insurance and the market for mortgage securities dried up. Ambac ratcheted up estimates for claims it will need to pay on home-loan debt by $2 billion."

How do you remain alive as a business when your business falls off 87%?

The lyin' is now so thick in our financial system that you literally can't go 24 continuous hours over the last two weeks without some CEO making some sort of statement that is proven to be false within the next couple of days!

Every one of these clowns needs to be taken in irons and marched through the floor of the NYSE in a monster chain-gain-style perp walk.

I wonder if CNBC would cover it?

Go long lawyers!

Speaking of lawyers, there's lots of work for them in Californicated. Dig this report out of LA:

"From DataQuick's report on California foreclosures in the first three months of 2008: "Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter. ... Last quarter's total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007."

That translates into 517 foreclosures every day in the first quarter of 2008.

DataQuick president Marshall Prentice: "The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the 'loans-gone-wild' activity happened in late 2005 and 2006 and that's working its way through the system. The big 'if' right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans.""

Could?

More like "will, with certainty."

Can I double down on that "go long lawyers" wager?

By the way, if you think deflation can't happen here, well, you're wrong. I've talked about the why and where several times but Mish has recently published a long article on this as well. Check it out - its a good read. Nothing in there that I disagree with, and in fact its pretty much what I've been preaching on for a while, but its nice to see other people can actually add up the numbers (specifically the Level 2 and 3 "assets") and come to a reasonable conclusion on the odds of being able to "bail it out."

The math ain't that hard folks; even though the numbers are large, a calculator can handle it.

So can you.

The Euro hit $1.601 against the dollar yesterday as the ECB started making noises about raising interest rates:

"The euro traded within a cent of the record against the dollar after European Central Bank officials said they'll increase interest rates from a six-year high if inflation doesn't slow."

Well that's gonna leave a mark (on Ben); that "massage" was delivered with a baseball bat.

To the nose.

At full power.

See, now Bernanke has a nasty situation on his hands. He can continue to add liquidity and drive rates down further or hold them where they are, and we get $150 or even $200 oil while the Euro winds up towards 2.0:1

Or we can say "price inflation wins over the pigmen" and drain the swamp, exposing all the idiots who have been swimming with no suit.

The problem with doing #1 is that the economic outlook for the US goes straight in the tank if price inflation doesn't quit ramping, and he knows it. Ben also knows that the CPI print last month was artificially depressed, but people's wallets can't be fudged.