Maybe it was always Fannie Mae
(FNM)
. Maybe from the inception of this credit crisis. Fannie Mae was a company set up, like the FHA, to relieve a credit crisis in mortgages. It screwed up so badly in the Clinton years that the Republicans decided to bring it to heel. They decided to hobble it and tried to wipe it out in a belief that the private sector could do the job better than Fannie Mae. It wasn't capitalist enough.
Throughout the last few years the current administration has done everything it could to try to wipe Fannie out. The OFHEO head, the regulator, did its best to make it so it could not play a role in easing the crisis. In the end, in the last few weeks, the administration even refused to acknowledge that there had been -- for as long as it has been created -- an implicit guarantee that the paper it issues would protected. That caused an incredible run on the Fannie Mae bank and made its once-gold-standard paper fall below what I would regard as second-rate corporates. Any company that used its paper as collateral, whether it be Annaly Mortgage
(NLY)
or Bear Stearns
(BSC)
was threatened with extinction because you can't really hedge the losses here, as everyone has always thought this paper traded to par.
The last straw was this weekend when Treasury Secretary Henry Paulson basically admitted that as hated as Fannie Mae is by this president -- who truly knows absolutely nothing about either the economy or the credit markets -- the quasi-governmental agency had to be engaged to help things and the overregulation of it be suspended. So what if it had losses right now, the 300,000 defaulters on homes now threatened to shut down the whole national infrastructure for home-buying.
What you are seeing now is the release of Fannie Mae from the clutches of the regulators, including former Bush roommate James Lockhart, who in the name of trying to stop an organization known as a Democratic Party giveaway, almost caused -- and still may cause -- a bailout so enormous that it could drive our own nation into a trillion-dollar bailout.
Now you see Freddie Mac
(FRE)
and FNM lift. If they have to sell equity to clean up their books, they can do it now. The problems in the mortgage market will now settle down, and rates will go lower. We could be near the end of the most major part of the housing crisis as we get closer and closer to the end of the vicious resets and the beginning of the Fed's plan to expand the use of bond collateral for cash next week and the Congressional plan to make Fannie Mae take loans that are in the $700,000 range.
This was all political and so dumb it is scary.
The last phase of this rescue must come with the Fed going in to buy Fannie Mae paper itself. That will enable more of the stuff to be retired and free up the trading desks of places like Merrill
(MER)
and Citigroup
(C)
before they, too, go the way of Bear Stearns, although Citigroup is too big to find a buyer.
Things are getting better. That's why the rally and it will continue as long as the Treasury, at last, takes its responsible non political and non-laissez faire course.
At the time of publication, Cramer was long Annaly.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.
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