A few misplaced words is all it takes to scare the market into submission. The proposed reason for today's impressive market reversal from up over one percent, to negative now, has been attributed to testimony by the Fed's Jon Greenlee, Associate Director, Division of Banking

Supervision and Regulation, before the Subcommittee on Domestic Policy, Committee on Oversight and Government Reform, U.S. House of Representatives, Atlanta, Georgia. Mr. Greenless strays from the party line and dares to say (the truth) things that his associates at the secretive Federal Reserve would never willingly share with the market for fear of just the kind of reaction that we have seen in past hour. Case in point:

"The condition of the banking system is far from robust. Two years into a substantial economic downturn, loan quality is poor across many asset classes and, as noted earlier, continues to deteriorate as weakness in housing markets affects the performance of residential mortgages and construction loans. Higher loan losses are depleting loan loss reserves at many banking organizations, necessitating large new provisions that are producing net losses or low earnings. In addition, although capital ratios are considerably higher than they were at the start of the crisis for many banking organizations, poor loan quality, subpar earnings, and uncertainty about future conditions raise questions about capital adequacy for some institutions. Diminished loan demand, more-conservative underwriting standards in the wake of the crisis, recessionary economic conditions, and a focus on working out problem loans have also limited the degree to which banks have added high-quality loans to their portfolios, an essential step to expanding profitable assets and thus restoring earnings performance."

One wonders what would happen, and whether the S&P would be in the double digits, if the Fed were to disclose all it knew about the real state of the economy. And just in case you were wondering if the Fed is really focused on the recently disclosed mandate of forcing banks to lend horded capital, instead of collecting interest in excess depository reserves, read this:

We want banks to deploy capital and liquidity, but in a responsible way that avoids past mistakes and does not create new ones. The Federal Reserve is committed to working with other banking agencies and the Congress to promote the concurrent goals of fostering credit availability and a safe and sound banking system.

Thus if you are expecting excess reserves with the Fed, which recently hit $1 trillion to decline any time soon, do so but don't hold your breath.

Full testimony: