TheStreet.com's Jim Cramer says that when every major financial institution is insolvent, none of them will be insolvent -- and reminds you that insolvency is not bankruptcy.
When everyone is insolvent, no one is insolvent.
If you took all of the loans in the SIVs and the CDOs and you looked where they really reside, if you look at where all the second-liens reside, if you opened up the books to everything, what you would see is massive insolvency across the board.
And I am telling you to forget about it. When everyone is insolvent, no one is insolvent. Do you really think it matters? Do you think at this point that the government is going to let Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take) fail? You think it has that choice? Can the monolines be left to fail? I don't even know if they will let Radian (NYSE: RDN) (Cramer's Take) fail, that's how dicey everything is.
People keep telling me, "Read this guy to see how bad things really are," or "Did you see that article about how MBIA (NYSE: MBI) (Cramer's Take) is broke, or Washington Mutual (NYSE: WM) (Cramer's Take) is insolvent?" To which I say, no kidding.
I have been saying that for months. It doesn't matter, at a certain point bad is good, and we are at that point. We are at the point I was hoping to avoid, which is a massive bailout of the system because Ben Bernanke got it wrong and stopped cutting in October. Now we will have to spend hundreds of billions of dollars one way or another -- maybe through the implicit guarantee of FNM/FRE -- to make sure the system just doesn't stop, choked on bad mortgage loans. We have to do that because someone at the Fed said "not this time, we are not going to take rates back down to where the problems began," and they had to, and they got it wrong.
But understand that insolvency is not bankruptcy as much as you wish it were if you were short Ambac (NYSE: ABK) (Cramer's Take) or MGIC (NYSE: MTG) (Cramer's Take). The government stops it from happening.
That doesn't mean there will be no bankruptcies. It does mean it is time to recognize that they really did know nothing and now they have to do it the hard and expensive way, but they will save the system.
They did it just like this in 1990. They are going to do it now.
I reiterate that the short side is the wrong side.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in stocks mentioned.
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Reader Comments (Page 1 of 1)
12-07-2007 @ 11:18AM
ajgorm said...
My worry is that the government will have to print more money creating run away inflation. .The estimate is 2 million subprime loans mature in 2 years that is 80000 per month at an average price of $200k per home then add the taxes lost jobs ect How can the government manage to afford paying and keeping themselves and mortgage lenders solvent ?