TheStreet.com's Jim Cramer says the latest proposal leans on private industry and the states, two groups that already failed.

"The plan, which relies primarily on state regulators and private industry to tighten their oversight of financial markets, calls on states to issue nationwide licensing standards for mortgage brokers."

That quote, from the lead story in The New York Times, headed "White House Offers Plan to Ward off Credit Crisis," is exactly what is wrong with every response from this government to the crisis we are in.

First, the state regulators are a joke, have been a joke and always will be a joke. We have had state regulators, some of them actually attempting to be good at their jobs, but this real estate industry is always more powerful than state government, so it is a hopeless proposition. All of the problems in this business may have started with mortgage brokers putting people into mortgages that they shouldn't have, but that would have simply stopped had the Federal Reserve said that it didn't see the wisdom in 2 and 28 loans. They pushed them, didn't believe in derivative packaging, and thought that loans should be kept on the books of the banks UNLESS bought by Fannie Mae (NYSE: FNM) (Cramer's Take).

State regulators and private industry are supposed to tighten their oversight of financial markets? Is Paulson kidding?

Every time the states have tried to exercise any hegemony for even legitimate oversight for the financial markets, the SEC has fought. Anyone remember the pre-Client Nine's attempts to regulate bogus research and mutual fund market timing and the lack of help he got from the feds? States don't have the sophistication to do this.

Oh, and have private industry regulate? Don't these guys in Washington see that's just what got us into this mess? What you see is the private sector regulation and it is rapacious and foolish. Oh, and you want nationwide standards for mortgage brokers? Here they are: work at a bank.

If you want to know why we are at the brink of this precipice it is because of nonsense like this from Treasury, trying to put arson regulations in while the fire's about to rage out of control, one they can stop. Isn't there time to put out the fire before the mortgage industry burns down the financial system? If Treasury had simply recommended that the Fed buys Fannie Mae paper because it think Fannie Mae paper is cheap, if the Fed had some bravery and some wiseguy sense, it would do it.

No, these guys are all about cleaning up an industry that is all but gone: the mortgage broker industry, to which, by the way, I say good riddance. If you are making loans not backed up by a deposit base, you get this nonsense. From what I can tell, the only one that was actually good at this stuff was Thornburg (NYSE: TMA) (Cramer's Take), and they were brought down by leverage and the terrible mortgage REIT structure, not by bad lending.

So, if you want to know who is prolonging this crisis, look no further than Washington. There has been a big enough cut in homebuilding, there has been a good decline in home prices, and the speculators and weak lenders have almost all been blown out. It is time to save the system, not issue voluntary suggestions that even the casual observer notes have either taken care of themselves or won't work anyway.

I reiterate -- I am embarrassed by these guys. Thank heavens, no matter who wins the White House, they will soon be gone.

RELATED LINKS:

• Democrats Propose Mortgage Solution
• Paulson Cracks Whip at Mortgage Industry

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 the stocks mentioned.