by Calculated Risk on 2/26/2009 11:59:00 AM

I'm not talking about Cape Fear Bank, although they just entered into a written agreement with the Fed. Another bank to watch for on Friday afternoons ...

I'm more concerned with the stress tests, and I fear they will be inadequate.

Bloomberg reported today: Moody’s May Downgrade More Subprime-Mortgage Debt

Moody’s Investors Service said it’s reviewing all 2005, 2006 and 2007 subprime-mortgage bonds for credit-rating downgrades, covering debt with $680 billion in original balances.

The review reflects an increase in Moody’s expected losses on the underlying loan pools, the New York-based company said in a statement today. Losses for such mortgages backing 2006 securities will probably reach 28 percent to 32 percent, up from a previous projection of 22 percent, Moody’s said.

The ratings firm said that it boosted expected losses based on “the continued deterioration in home prices, rising loss severities on liquidated loans, persistent elevated default rates, and progressively diminishing prepayment rates.”

This is extremely timely.

I can understand Krugman's Feelings of despair

... Obama and Geithner say things like,

If you underestimate the problem; if you do too little, too late; if you don’t move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis.

But what they’re actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost.