Thinking Positive: What the Government Can Do
Cramer has been painting a bleak picture about this mortgage crisis, all in an attempt to make people focus on just how serious the ripple from this mess could become. But tonight he is turning the spotlight on what could go right. Cramer has been in the game a long time and he’s seen plenty go wrong. But it has taught him that, when it comes down to it, optimism consistently beats the pessimism.
There is more than one way to get out of this debacle – but it starts with the government. Cramer isn’t calling on the government to bailout the home speculators or the ridiculously levered hedge funds or banks. These people made mistakes by causing this situation to escalate, Cramer said, and they should pay for them. But how about loan guarantees for the poor who didn’t know what they were getting into or were fooled because they didn’t understand that mortgage rates were about toexplode upward? Cramer is all about making money over friends, but he’s drawing the line here. If the government doesn’t help, Cramer believes seven million people could lose their homes when all is said and done. The government should not let that happen on its watch.
So far, the Federal Reserve has not been helpful, Cramer said. He thinks Chairman Bernanke has altogether ignored the problem, focusing entirely on worrying about inflation. Cramer’s got a news flash for Uncle Ben: the collapse of all these loans, mortgages and home prices is deflationary. The Fed is fixated on the wrong problem.
When the Fed meets tomorrow it could be more of the same - but there's always the chance it could surprise us. To ease the problems, Cramer thinks the Fed needs to identify that it is worried about the problems in housing and announce that it has changed its bias. It would be terrific if the Fed said that it would make available as much liquidity as is needed for those who are lending to those who are struggling to make housing payments. Or it could recognize that the mortgage problems are spilling over to other parts of the economy. William Poole, the St. Louis Fed Reserve President, could also resign, Cramer said, which would be helpful as he has shown a “frightening lack of awareness or compassion about the problems in the system.” Any of these things would trigger the beginning of the stability we need to start to repair the mortgage system and end the panic, Cramer said. As is usually the case, the government can be part of the problem or part of the solution. Tomorrow’s Fed meeting will give an indicator as to where it stands.
But the government has other avenues to pursue this issue aside from the central bank. Cramer thinks one would be if Treasury Secretary Hank Paulson announced that he is encouraging the lending agencies, Fannie Mae and Freddie Mac , to issue billion of new loans backed by federal insurance that will allow people to refinance and new loans that will help get rid of this housing glut. This could also make mortgage rates, which have spiked amazingly in the last week, come down. There has been some commitment to this on the part of the Treasury, Cramer said, but it has not yet been substantial in any way.
Bottom Line: Any of these three things on the part of the government could make a huge difference and instill some much-needed confidence in the whole system, Cramer said. So don’t get mired in bearishness and forget all the good things that could happen to turn this ship around.
Jim's charitable trust owns Fannie Mae.
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