Fannie and Freddie Top the List of Woes
By Jim Cramer
RealMoney.com Columnist
3/7/2008 6:47 AM EST
There aren't many days like yesterday. Or let's hope there won't be. Let me refresh all of the things that went wrong so we have the context of how treacherous this market really is.
1. The Treasury and the President saw fit not to endorse the "implicit" guarantee for Fannie Mae (FNM - commentary - Cramer's Take - Rating) and Freddie Mac (FRE - commentary - Cramer's Take - Rating) paper. For those of us who have bought and sold this paper for most of our lives, this was the signal that almost everything could be worthless. Their refusal to acknowledge the problems was so in the Hoover playbook that it was shameful.
2.We always figured that you should be able to lever up if you are in the bond market, with nine to one being an acceptable level for rock solid collateral like Fannie Mae mortgage paper, which was presumed to pay off at par with the only question being when. Now, because the question is no longer "when," but "if" that level of leverage is going to be obliterated. Maybe three or four times is all we will get. There have to be trillions of dollars at risk in loans right now because of that loss of implicit guarantees.
3. We have lost what is known as the "high-end' entirely with what happened yesterday with Nordstroms (JWN - commentary - Cramer's Take - Rating) and Saks (SKS - commentary - Cramer's Take - Rating) and yes, JC Penney (JCP - commentary - Cramer's Take - Rating), which had been moving up scale. Wal-Mart's (WMT - commentary - Cramer's Take - Rating) ascendency is because people are at last too poor to go elsewhere as Wal-Mart is the soup kitchen of stores.
4.The issue I heard more about than any other yesterday was inflation. I heard it a gazillion times because of oil and copper and gold. That presumption is so wrong that, well, suffice it to say that I have never seen so many people worried about the wrong thing in my life other than in 1932.
5.The student loan system, one of the gems of this era, is going, very quickly, to be obliterated if something isn't done soon. Could this, and the destruction of Fannie Mae be some sort of GOP last act, as the government involvement in student loans and home mortgages is something that the Republicans have hated from inception. Is this Bush's legacy?
6.We have no FDIC. Who is that clown who runs this once important organization?
All in one day! Can you imagine? Now I know that when ever things get so bleak we miss things and there's plenty worldwide that is going right. But that caveat has cost more people more money than just about anything uttered in the last two months. I don't want to utter it again until something goes right for the American consumer and the American banking system. When it does, I will join the merry band again. Right now, let's just say that the bull story got so kicked around yesterday that it felt like an Iowa slaughterhouse. Fueled by the inefficient ethanol of course.
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