There is much anecdotal evidence that one of the inflators of the housing bubble has been mortgage fraud – fraudulent appraisals, “cash back to buyer”, straw buyers and credit fraud, especially on stated-income loans.

The mainstream press is finally starting to pick up on this elephant in the room. Here is a report from the L.A. Times, and here a CBS video on “liar’s loans”.

Moving with its usual alacrity, the government is finally closing the stable door, at least on the lying about income. It is also finally issuing guidance on the most toxic loans, option-ARMS. That must mean it’s really over.

There is much cheerleading and shilling going on for all time highs on the Dow Jones Industrial Average. Short memories.

Last time we made a new all time high, we peeled off 16% in the next month. The last time we approached that high (in May) we lost 10% in the next month or so (all reference Dow Industrials). A recession is clearly imminent, if not already underway, and the the real estate bubble is popping.

Don’t drink the Kool-Aid. If you’ve been seeing this you’re too close to the punchbowl.

Not very financial, or even real at this point, but cool nonetheless. Virgin Galactic’s video of their SpaceShipTwo flights ($200K or 2 million Virgin miles) is well done.

The last responsible and competent Fed chairman speaks out.

“Sept. 26 (Bloomberg) — Paul Volcker, who halted a wage and price spiral as Federal Reserve chairman between 1979 and 1987, said he’s worried both about inflation and pressure on the U.S. central bank to not do anything about it.

“I am a little bit more worried about inflation,” said Volcker, 79, speaking at a discussion sponsored by the Women’s Economic Round Table in New York yesterday. Gerald Corrigan, who served as New York Fed president from 1985 to 1993, said he shared Volcker’s concerns.

While the inflation rate isn’t “high” or “running away,” Volcker said, “it is kind of creeping up, and I am impressed by the degree of pressure, if that is the right word — psychological pressure, political pressure — there is not to do anything about it.”

“We live in this peculiar world where 3 percent inflation is stability but a half percent decline in the price index is deflation. I am not quite up with modern nomenclature.”

Volcker’s comments come as the Fed under Chairman Ben S. Bernanke, 52, has held interest rates steady at the past two meetings, a pause that followed 17 consecutive rate hikes since June 2004. Still, inflation has been at or above Bernanke’s own numeric benchmark since April 2004, a sign of the unusual tolerance the central bank has shown toward price increases as it tries to balance a sharp slowdown in housing that risks weakening consumer spending.”

The stock market continues to rally, ignoring the stream of incoming economic data which seem to be telegraphing the collapse of the housing bubble and concomitant slowing or elimination of economic growth. The disconnect seem ominous to me, but belief in the Goldilocks economy and/or the omnipotent Fed’s “Bernanke put” is widespread.

On the other hand, bonds are rallying and yields dropping, apparently discounting the end of the world, pretty much. Wish I’d kept those TLT calls, right idea, bad trading. The commercials in the bond market are still record short, accommodating the (heavily long) speculators. Usually the commercials are right. Should probably be buying TLT puts and will on a clear trend reversal.