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Jim Cramer [Mad Money] Melt-Down...


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Depends on which side of the trade they're on, I suspect. Don't expect many of the folks on the wrong side of the leveraged MBS/CDO/ etc equation to be strolling around wall Street with "Will Arbitrage for Food" signs around their necks anytime soon, though.


I suspect that not all of the folks whose homes serve as the underlying collateral for the repackaged loans of various sorts that the imploding securities in question were constructed from may not fare quite as well.


Leverage gives, and leverage takes away...

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Nice clip! This train wreck has been coming down the tracks for a long, long time and anyone who didn't realize was deaf, dumb and blind. Us short sellers are doing just fine. And I would have thought that an experienced trader like Cramer would not be so emotional, he had plenty of time to sell and get on the other side.

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Seems like the adage "The market can stay irrational longer than you can stay solvent" applies to most folks who could see the trainwreck coming in this sector. Kudos to you if you timed this one right - I'm sure you're making a killing if that's the case.


In other news, Cramer may not be too far off the mark with his rhetoric, but I don't think that any action by the Fed is going to make the participants in the secondary market any more anxious to buy tranches of securities constructed from fraud-laden POS ARM/IO mortgages backed bynothing more than declining collateral and the ability of folks who borrowed 5-10X their incomes ability to keep their monthly payments current.



Summary from elsehwere on the web....


“The market dropped particularly sharply yesterday afternoon after investors were rattled by remarks by executives at Bear Stearns, the investment bank that has been heavily involved in mortgage securities. The firm’s assurances about its own financial position were overshadowed by bleak comments by its chief financial officer about the credit markets.”


“‘I have been at this for 22 years, and this is about as bad as I have seen it in the fixed-income market,’ said Samuel L. Molinaro Jr., Bear Stearns’s chief financial officer.”


“Lenders say they are increasingly unable to persuade investors to buy packages of home loans made to borrowers with little or no down payment or those who cannot fully document their incomes. As a result, many companies are no longer offering such loans to potential buyers.”


“‘I have never seen it happen so quickly,’ said Steve Walsh, a mortgage broker in Scottsdale, Ariz. ‘Banks always do these little cutbacks here and there. What they are doing now is a liquidity crunch. It’s a credit freeze.’”


“‘It seems to me things got every bit as silly in the credit markets in the last few years as they did in tech stocks in the late 1990s,’ said Douglas M. Peta, chief market strategist at J. & W. Seligman & Company, an investment firm based in New York. ‘I still think we may have a ways to go in this.’”


From Dow Jones Newswires. “The secondary market that supports a big part of the U.S. mortgage industry has ground to a halt in recent days, a development that dramatically could increase the cost of home loans in expensive regions, experts said.”


“The private, secondary mortgage market ‘is not functioning,’ Mike Perry, CEO of home loan specialist IndyMac Bancorp Inc., wrote in an email to IndyMac staff.”


“It’s currently difficult to trade even AAA-rated parts of private mortgage- backed securities. Only mortgages that conform to the standards of government- sponsored enterprises, or GSEs, like Fannie currently are trading, Perry said.”


“That account was confirmed by Scott Valentin, a mortgage company analyst at Friedman, Billings, Ramsey. ‘We’re hearing securitizations have frozen up,’ he said in an interview. ‘No one wants to bid on these things and then find out that the loans are worthless tomorrow.’”


“‘If home buyers are in loans that don’t conform with Fannie or Freddie, given present market circumstances, they will have to pay at least 100 basis points more,’ explained Andy Chow, portfolio manager at a $14 billion San Francisco investment firm. (A basis point is one hundredth of a percentage point).”


“That will have a big impact on the housing market in California, Florida and other places where home prices are very high, he said.”


“‘In these areas, if home buyers don’t have much money as a down payment, their loans will be too large to conform with Fannie and Freddie’s standards,’ Chow explained. ‘That means people will pay much higher interest rates.’”

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Excellent on-screen meltdown. Cramer is a hack. Where was he when all the dubious loans were being repackaged on the secondary market? Isn't this just the market correction the invisible-handers always talk about? I did agree with his reference to spending money in Iraq instead of fundamentals back home. But Greeny is not in charge anymore and the Fed is unlikey to come galloping over the horizon with a rate change anytime soon. Given our debt, we have to keep the Chinese in a mood for buy US securities. Nasty position for anything but conservative investing these days.

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As of last November or thereabouts he was calling a bottom for homebuilder stocks and encouraging his audience to buy their stocks.


Cramer on Housing:






Cramer is essentially an entertainer, and has no fiduciary duty to anyone in his audience, so this is a case of caveat emptor. As was the case with the tech implosion, there was no shortage of people offering counterarguments and analysis that anyone who stayed long on these stocks chose to ignore.

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"What We're Hearing


By Paul Muolo


I'll put it bluntly: if you operate a non-depository mortgage firm (lender or servicer) and don't have a deep-pocketed parent or hedge fund as a sugar daddy you're likely to be out of business by year-end, probably sooner. In the 20-plus years that I've been covering residential finance I haven't seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s. One subprime executive who closed his shop a few months ago told me, "This is a liquidity crunch the likes I have never seen...."

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OK, so we have an industry that will push the risk envelope to the max, similar to the S&Ls. Wouldn't it have been prudent to have some modest government oversight to keep some ceiling to this speculation? Crash and burns like this have effects outside the immediate industry. Unbridled captilism is not self-regulating - unless you like these types of events. How much did the S&L bailout cost taxpayers? I dumped my Fanne Maes two years ago when I didn't like the smell of things.

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