As we wait for Congress to approve the rescue plan for the financial system, I offer you a list of things that must be done (some are related to the rescue plan, some are not) to prevent us from going back to the edge of the abyss. Call it my international to-do list:
The European Central Bank must cut rates by a full percentage point to get in front of what is rapidly devolving into Europe's own version of the U.S. mortgage crisis.
The Fed must cut rates to allow all banks to make more money on new mortgages. The Fed should make it clear that the goal is to avoid a recession. Policymakers should drop the ridiculous "guard against inflation" nonsense; otherwise, they will look like fools in the history books.
The Treasury Secretary must start talking about the real positive of the rescue plan here: The U.S. will own the mortgages and can work to stretch out interest payments for those trying to stay in their homes. The worked-out mortgages can then go to the FHA for maintenance. This back end of the deal has two effects: a.) The foreclosure rate should go down very quickly; and b.) the mortgages which are collectively probably worth bidding no more than 65 cents on the dollar will, in two years, be worth more than that, much more, I believe.
The FDIC must quickly move to offer $1 million insurance to make people feel there is no risk to keeping assets in banks instead of Treasury bills.
The FDIC must offer some sort of protection to the corporations that want to put deposits in the strong banks. The strong banks should pay for some of that deposit insurance to help rebuild the FDIC. That way, the absurdity of cash-rich companies -- and there are plenty of them -- earning no more than .6% on their cash would stop. Their cash could go into bank money funds, which could then use that cash to lend more or buy commercial paper to help reliquefy the market.
A suitor must be found for Wachovia (WB - commentary - Cramer's Take), with the deal structured so as not to wipe out the bondholders. We cannot have another set of bondholders clobbered. The problem with Wachovia is the marks that JPMorgan Chase (JPM - commentary - Cramer's Take) took for acquiring Washington Mutual (WM - commentary - Cramer's Take). But I believe the Wachovia loans are better than the Washington Mutual loans, although I don't know how much better.
The federal government must make it clear that the collateralized debt obligations can be broken up. There is a widespread belief, a false one, that CDOs can't be broken into individual mortgages. Totally untrue. That means those who own these, too, should be able to sell them to the Treasury for a price that can make sense. I understand that JPMorgan Chase has people and analytics to get real prices for a range of mortgages. Then everyone should be able to do it, too, including the government.
The Securities and Exchange Commission must stop the nonsense with the short-selling ban and replace it with the old uptick rule, although it should be at least a 5 cent or 10 cent tick, not a penny-plus tick. The SEC should get some people in there who are retired traders so they can get a sense of how the stock market works. The issue here, by the way, is software. The brokers have to have time to get software to make the process work.
AIG (AIG - commentary - Cramer's Take) must disclose all of its liabilities and credit default swaps and give us clarity about what that market is like and how much it is really on the hook for. This is vital because the previous management hid this stuff. We need to know the U.S. exposure and we need to know how much it is going to protect European banks. The government can also use its credit default swaps to start up a commodities market in them like the one Dan Dicker suggested in these pages and talked about on CNBC.
Let us in. I want a piece of the Troubled Asset Recovery Program. Let taxpayers individually benefit from this program by option. When you include the warrants and the mortgage refinancing, the program will be a winner. It certainly won't be a bailout.
None of these suggestions is a quick fix to anything. Everything I am suggesting is, once again, just to attempt to avoid a severe recession with huge unemployment.
At the time of publication, Cramer was long JPM. Cramer is a commentator for CNBC, a unit of General Electric, whose shares Cramer is long.
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Jim Cramer Blog Why I Won't Call This a Bailout 9/28/2008 10:39 AM EDT The Treasury's plan will get banks lending again and will stave off what was sure to be a catastrophe.
Jim Cramer Blog Cramer: Monitoring the Black Holes 9/27/2008 6:15 AM EDT Let's review where we stand with some of the dark vortexes pulling on the financials and beyond.
Jim Cramer Blog My International To-Do List 9/28/2008 2:42 PM EDT This is what central bankers and governments must do to save us from disaster.
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