Cramer: When Everyone is Insolvent, No One is Insolvent
Here, on the other hand, is Jumpin’ Jersey Jim Cramer’s current view at TheStreet.com:
QUOTE
When everyone is insolvent, no one is insolvent.
If you took all of the loans in the SIVs and the CDOs and you looked where they really reside, if you look at where all the second-liens reside, if you opened up the books to everything, what you would see is massive insolvency across the board.
And I am telling you to forget about it. When everyone is insolvent, no one is insolvent.
Do you really think it matters? Do you think at this point that the government is going to let Fannie Mae and Freddie Mac fail? You think it has that choice? Can the monolines be left to fail? I don’t even know if they will let Radian fail, that’s how dicey everything is.
People keep telling me “Read this guy to see how bad things really are,” or “Did you see that article about how MBIA is broke, or Washington Mutual is insolvent?” To which I say, no kidding.
I have been saying that for months. It doesn’t matter, at a certain point bad is good, and we are at that point.
We are at the point I was hoping to avoid, which is a massive bailout of the system because Ben Bernanke got it wrong and stopped cutting in October.
Now we will have to spend hundreds of billions of dollars one way or another — maybe through the implicit guarantee of FNM/FRE — to make sure the system just doesn’t’ stop, choked on bad mortgage loans. We have to do that because someone at the Fed said “not this time, we are not going to take rates back down to where the problems began,” and they had to, and they got it wrong.
But understand that insolvency is not bankruptcy as much as you wish it were if you were short Ambac or MGIC. The government stops it from happening.
That doesn’t mean there will be no bankruptcies. It does mean it is time to recognize that they really did know nothing and now they have to do it the hard and expensive way, but they will save the system.
They did it just like this in 1990. They are going to do it now.
PART TWO
The sheer lunacy of the AAA ratings of MBIA shows that there’s not an ounce of truth to the ratings process.
But what is Standard & Poor’s or Moody’s supposed do to? A lot of their now seemingly worthless ratings for toxic mortgage portfolios depend entirely on the MBIA guarantee behind them. If the ratings agencies downgrade the clueless MBIA paper, the ratings agencies’ ratings will be revealed as a joke. Those who are relying on the insurance backstop to be able to continue the fiction of solvency will have a very hard time — even after Paulson’s plan — continuing to pretend there is nothing wrong.
That’s why it is imperative that there be no downgrades of these monolines, particularly MBIA, regardless of the questionable honesty involved. Put simply, this market can’t handle the truth, Moody’s can’t handle the truth, S&P can’t handle the truth and MBIA can’t handle the truth.
So why should they? Why not just keep it AAA, look the other way and let MBIA stay afloat long enough to let someone buy it? It is vital that the truth not be told about these companies and the ratings.
And I am betting the truth will not prevail. It just isn’t feasible right now. So it has to be canned for a later moment when it can’t hurt as badly.
Those who think that this isn’t “right” are simply unwilling to recognize how the game is played. Charles Edward Chaplin, the unbelievably good “acting” CFO, and in this case I am talking Oscars, must not be made to look foolish. His critics must be attacked. The ratings and the patina of solvency may just be a real good bet even as it is wrong, stupid, ridiculous, dishonest and outrageous.
The heck with the truth. Save it for novels.
END QUOTE
Approaching insolvency myself, I take succor.
