The Fed Can't Save Hedge Funds

I'm sick of hearing about moral hazard and the bailing out of hedge funds. The Federal Reserve can't save hedge funds, only investors can and my bet is that the less brain-dead investors -- there are always people in funds who have no idea what's going on -- will still pull out and leave the most aggressive long cheap/sell dear funds in the dust.

In other words, there's more than just one form of pressure on these funds. There is position pressure -- how do I get out of Take-Two Interactive (TTWO - commentary - Cramer's Take), IndyMac (IMB - commentary - Cramer's Take) and Novastar (NFI - commentary - Cramer's Take), or any of the 2005-2006 mortgage banks that no one wants, and there is investor pressure to get money back.

I don't believe that the credit departments of Merrill Lynch (ML - commentary - Cramer's Take) or Goldman Sachs (GS - commentary - Cramer's Take) or Morgan Stanley (MS - commentary - Cramer's Take) are at all going to change their collateral demands because of the Fed. Money will still be needed to pony up. In some cases the only money left is the money that these funds can try to pry from existing investors (unlikely), or new people like Goldman did with Eli Broad. I don't think there are an endless number of would-be investors out there. So the redemption battle should go on.

It is that battle that makes it so that we will not be out of the woods until we get a couple of easings that makes the sidelines seem perilous.

There's a big difference now, though, than last Thursday, before the discount rate cut: Now you feel emboldened when you see selling, instead of wanting to run from it.

In the last few weeks we have seen obvious forced selling in so many financials, as well as oils and industrials. In each case potential buyers let the stocks fall, in part because they figured there could be something wrong with the companies' earnings. It is true that some of the earnings could be curtailed. When I spoke with Trinity Management on air the CEO point blank said he sees a slowdown because of the credit crisis. But that's the only one I can find, and the tech guys I have had on, in particular, have seen no slowdown at all. Those stocks will now be better to buy.

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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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