Mortgage Malaise's Bright Spot: the Fed

How different? How bad? Sometimes you have to ask those questions about the things that are ailing the market because on any given day the negatives can seem downright overwhelming.

Right now the two most pressing negatives I keep hearing about are the unwinding of a strategy to borrow money in one country and invest it in another, and the pending busts of some companies that made bad loans and the loans are now coming back to them.

The former, point blank, is simply not in itself going to cause a market to go down. Unwinding a strategy that involves pulling money out of one country into another may cause a downturn in the U.S., but you just buy that downturn.

Think about it: We had the biggest and baddest unwinding ever in 1998, Long-Term Capital, a worldwide, margined, ridiculously wrong and rogue series of decisions that caused one of the great buyable swoons of all time. It didn't seem buyable at the time; it seemed like the end of the world. But it snapped right back when the Fed said it would take care of things.

So how about the busts?

OK, what happens when real estate loans go bust? The issuers of them that have to take them back -- if that's the language of the loan -- will go under and while no public one has gone under, you know that is going to happen. Until it does, no resolution.

Everyone I know is trying to relate these mortgage loan problems to the mortgage-backed bond packagers and that makes some sense. But those packages are non-recourse and there are always buyers of this kind of loan out there.

Will the investment houses that do this stuff have their earnings crimped? At any given time these firms can get hurt by this stuff, and their stocks do go down, but these firms have many lines of business and you can't just write them off because of this one business.

That said, if you can't handle a decline, and believe that you can get back in when the Fed cuts, good luck to you. I have never been that good.

At all times, remember that the bad-loan business is Fed-controlled, meaning the Fed can reverse the process by taking short rates down so even deadbeats can refinance. That will happen.

So many times I have seen people make their investment decisions based on what they see now -- a Fed that isn't worried and isn't about to change. I have to tell you that in 25 years I have never seen the Fed when it wasn't worried and wasn't about to change. But it has turned out to be worried and has changed very often.

As long as you know that, you will recognize that a negative, like bad bank loans, morphs into a positive, but only after there's enough pain to shake out everyone who doesn't understand the ebb and flow of the process.

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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. Click here to order Cramer's latest book, "Mad Money: Watch TV, Get Rich," click here to order his book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here.

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