Well let me practice full disclosure here - I don't know if it will be terrible or not.

That's because I'm writing most of it Monday night!

But.... some things are terrible, and they are fraudulent.

In fact, it seems that The Ticker has become a chronicle of modern-day fraud.

Let's get right to it.

We start with Senator Shelby and his "housing bill", which he claims will not bill the taxpayer for any of its $300 billion cost. His claim on CNBC today was that this would be funded by the GSE's "affordable housing" fund.

That's a nice fantasy.

Where's the money going to come from?

Shelby says this is a $300 billion program with a $1.7 billion cost. Uh huh. Pull the other one. You're going to manage to pull this off with under $2 billion to support $300 billion in loans eh?

You really think so?

What is the current default rate in the FHA's book? Running north of 10%, right? And what's the severity (recovery) on those defaults? Well, that depends, but let's look at some possibilities.

Let's assume we "buy down" the $300 billion to 85% LTV, and what is picked up are underwater (otherwise you'd just sell instead of foreclosing, right?) So as a result we "haircut" 15% off the $300 billion right up front, which is $45 billion in up front costs. Note that I'm being particularly conservative in assuming that the "haircut" will be right at 100% LTV and not underwater.

And before you say "but someone else has to eat that", uh, no, that's not true. See, the majority of this paper is either guaranteed by Fannie or Freddie or is actually on their book! So this is a gigantic circle-jerk and the haircut will come from these firms.

It thus has to be counted against the total program size.

Now we have to look at what part of the $300 billion (once refinanced) will foreclose down the road. Let's assume that 5% does - which is hopelessly optimistic with current rates running about twice that, but heh, I'm being nice. With a recovery of 60 (about right in today's market) we've got another $6 billion in losses.

We're up to $51 billion, but Shelby said this program had a $1.7 billion cost.

Bluntly: He's lying, even if none of the original paper was on Fannie or Freddie's books; in that situation it would be around $6 billion in direct costs.

But since most of it is, the real number is closer to the full $51 billion!

Mr. Shelby, are you, like Ms. Landrieu, somewhat-deficient in your math - this time in addition?

After all, Ms. Landrieu failed at multiplication - that is a more advanced skill than addition, right?

Or were you intentionally lying to the American People on CNBC (like the rest of these fraudsters?)

Hmmmm.

This much is certain - if Fannie and Freddie have to eat $51 billion, they're almost certainly both zeros and we the people will eat it.

Oh, for those who say "we will never see 40% off houses from the bubble top" (including idiots like Kudlow and Kneale), what would you say if I replied "but we already have?"

"Median sales prices -- where half the homes sell for more and half for less -- are down to Feb. 2003 levels in Sacramento County. The county's median sales price in April fell to $232,000 -- down 32 percent from a year ago and 40 percent off its Aug. 2005, high of $387,000"

Heh, facts! Look at that!

This, by the way, means that anyone who bought from 2004 on is underwater.

And since houses, on average, "roll over" every seven years or so this means that about half of the homes in that area are in fact underwater right now!

How many foreclosures did you say you expected again?

As for the economy, I know, Goldilocks will rock and roll and The Bulls will rule.

Oook.

California is 13% of GDP. Now let's take a peek inside the state:

"For example in the areas of Modesto, Stockton and Merced the unemployment rates are above 10% while more than 60% of loans are close to being underwater, or larger than the value of the underlying house. Serious delinquencies in those areas are above 18%, while the national average is 3.6%, according to Barclays.

But beyond the implications for banks, California can really be seen as the testing ground for what the U.S. consumer looks like in coming years, and how he or she manages. If, somehow, the move from spending to savings can be done gradually, the downturn in the United States may be gentle.

If, on the other hand, it happens quickly, watch out. “Savings rates should probably have to rise to five to six percent in the next year or two to get us back to a stable position,” said Mr. Thornberg at Beacon Economics.“If you have a five or six percent rise in the savings rates, it’s functionally a five or six percent decrease in consumer spending."

Uh, actually, its worse than that.

See, most people were spending at 102-105% of their incomes. If we use a conservative "102%" ratio then the a 5-6% savings rate is really a 7-8% decrease in consumer spending, not a 5-6% one.

That, by the way, has never happened before - well, at least not since The Depression.

To put this in perspective since the consumer is 70% of GDP this is a real adjustment to GDP of about negative 4.9% from today's levels, which is enough to qualify as a "nasty, deep recession".

Never mind that one of California's towns has already gone bankrupt. How many more will follow? The answer is "lots", because falling home prices mean falling tax revenues, but you can bet these towns and cities have not planned for that.

Reality: You can't spend more than you make over long periods of time. This is true even if you're the US Government. We simply have to reduce spending until we run an actual (not fraudulently accounted for, where we steal Social Security "contributions") surplus in government, and we need to stop spending like drunken sailors as Americans. We can either choose to do it voluntarily or we will be forced to do it when our credit cards, both personal and government, come back "declined."

You think the housing market appraisal fraud is "yesterday's news"? Well don't read this, from today:

"The company said 91 percent of those surveyed said they’ve been asked to pump up the value of the homes they appraise, while 81 percent worried they’d lose repeat business if they failed to bring in the desired result."

91% eh?

If you happen to be of the mind to believe that this is all still "Subprime", or even "residential", think again:

" Retail properties are leading a drop in U.S. commercial real estate prices, which in March posted their steepest one-month decline since at least 2000, Moody's Investors Service said on Monday."

Right on cue; 12-18 months after residential turns down.

Funny how that works, and how many people said it wouldn't - and now get to eat crow.

As for the Credit Crunch, never mind the man behind the curtain. You see, Trichet, Soros and Buffett, you know, three guys who probably know something about this sort of thing, all said its not over and will get significantly worse, for exactly this reason.

Or, for that matter, Merideth Whitney:

"'The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen,' analysts led by Meredith Whitney wrote in a research note today. 'Just as strained liquidity pushed so many small and mid-sized specialty finance companies to beyond the brink, we believe it will do the same with the U.S. consumer.'"

Better late than never.

Oh, and don't tell the stock market.

The PPI came in with the "headline" cool but the core very hot, at double consensus of 0.4%. Well, duh. But don't look inside; they claimed that energy prices were flat on the month. Flat eh? Gas and Diesel (with the latter being more important on the PPI side) didn't move on the month eh?

Who do these people think they're trying to fool?

BTW the seasonal adjustment for diesel should be downward, not upward in the spring. Why? Because heating oil is diesel fuel, and over the last, oh, 10 years, there has been a very solid correlation with an exit from the heating season and a drop of ~5-10% in the price of diesel. It happened every year - until last year, when it didn't, and then this year when diesel prices actually went up coming out of the winter. Talk about "fitting the adjustment to the desired outcome" eh?

That, of course, doesn't work for very long, as those energy costs bleed into the rest of the index (core) quite reliably when you try to misrepresent.

Presto! Now we have core over headline!

The amusing part of price action is that yesterday the selloff was blamed on Sandisk's comment that $120+ oil is causing consumer softness and that this will continue.

One thing to think about kids - is it really possible that the people buying the market for the last two months are so stupid as to believe that oil doubling in price over the last six months, and gas headed to and beyond $4/gallon, won't have a significant impact on consumer spending?

If you believe that, then do you really believe that the stock market is a "discounting mechanism", or do you think that the stock market is more like a ship of fools where the lookout has hollered "ICEBERG!" but the Captain has decided that the lookout is obviously blind, and he therefore willfully ignores him?