The sub-prime mortgage "crisis" is getting even more nutty than Don Luskin suggested
this morning. Making the rounds in the blogosphere is Jim Cramer's bizarre rant
on CNBC against the Fed where he named some names and made some bold accusations. The quick summary is that the loudmouth Mad Money Maven, who caters to drunk college kids and rubes of all sorts, thinks we are at the precipice of Armageddon with seven million people about to lose their homes along with other sundry decimations to the financial system. Now comes the explanation
. He was acting out of conscience. He was boldly conveying the danger to all those poor folks, all seven million of them, who are about to be thrown out of their homes unless the Fed starts lowering rates. So says Cramer. Poppycock. He was arguing for the continuation of the Greenspan Put, or essentially a form of corporate welfare for big bond investors and underwriters. (Coincidentally, more on the Greenspan Put here
.) He wants rates lowered to relieve the pressure on all those that manufacture, sell, and buy bonds. These guys got greedy, were willingly blind to risk, made dumb bets and now the fruits of their speculation are turning rancid and Cramer wants a bailout for his buddies. Cramer wants the capitalism without the bancruptcy.
Does Cramer have a point about people losing their homes? Yes, some will and it is sad that some people are going to lose their homes undeservedly. I would wish it otherwise too, but the majority of the mortgage damage is going to fall on the head's of speculators and, frankly, some who deserve to lose their homes
). But we can't inject moral hazard into the system as a permanent feature of American capitalism over a sob story or two or we are all going to be worse off decades hence. Additionally, Cramer ought to know that a 25-50 bip rate reduction isn't necessarily going to keep the suffering masses in their homes. If you took on an "80-20" loan or some ridiculous 95% LTV interest only 5/1 ARM, then you are in deep yogurt anyway unless you start bringing in some additional bacon the old fashioned way. But those 50 bips might have kept Warren Spector in a job. Sorry Jimbo, capitalism without bancruptcy is like Christianity without hell. If you want capitalism of the Latin American variety, go ahead, but I'll take mine free of moral hazard thank you.