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Non-Tech : Cramer Touts
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To: Jack Hartmann who wrote (817)2/25/2009 1:23:28 AM
From: FR11 Recommendation  Read Replies (1) of 843
 
Jim Cramer (Mad Money) is now pushing something that will really hurt the banks if he can loudmouth it enough to get it put into law.

The objective is to get all the bad mortgages and CDOs priced.

The prevaling theory is to do a good bank-bad bank where the FED sets up a bank that buys all the bad mortgages at a discount agreed upon by the banks and the FED. - Job done.

Cramer's idea is this:
1) The government offers everyone a 40 year 4% mortgage including refinances.
2) There is obviously a big shortfall between the original appraisal and today's appraisal.
3) The government then gives the banks a "certificate of participation" for the difference.
4) The next time the house is sold the first money gained over today's mortgage goes to the bank until the certificate of participation is paid off.

Absolutely nuts! This would cause three major problems:

1) The reappraisal causes the bank to take a major "cram down" in principal. It is just the FED forcing the banks to redo all their mortgages at today's appraised price and eat the difference.
2) The revenue stream for the banks is really hurt bad. You will go from collecting 5 or 6% down to 4% in a heartbeat for all your mortgages.
3) The certificate of participation is worthless. Nobody would pay a nickel for them. This creates a whole new class of homes called "cram down homes" which nobody will ever sell because they cannot make a profit. When they get ready to die they will do a inter-family transfer keeping the home from ever seeing the market again,

It is just a huge plan to suck all the money out of the banks and give it to the average people without any compensation to the banks. You would now have the FED heavily involved in both loans and real estate.

How stupid can you get? When you run your own show and have no critics I guess everything is right.

He has a big TV show and has been screaming it for days now and he is going to do a special on it tomorrow night with Sheila Bear where he wil probably try to get her to back the idea.

Somebody needs say in public what a stupid plan it is.
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