Flush-Out Needed Before Fed Can Help

Bad close. Bad day. A day where nothing worked. A day where once again, the home crisis rocked the world. A day where we have begun to believe that the homebuilders themselves have not taken enough defensive action to save themselves.

We know that it will be hard to get a loan, but we also know that it should have been harder. We know that there will be a longer-lasting glut of homes on the market, but we also know that the homebuilders have cut back dramatically.

We know that the capacity has come out of the low-end lending business, but we also know, and this is gospel, that there will always be someone to lend to qualified buyers.

I have a sneaking suspicion that both undocumented immigrants and flippers -- guys who tried to buy a house high and sell it higher -- are behind most of the problems. And while the latter are still being hurt, the former have been thrown out of the game. So it is ironic that their actions, vintage 2006, are now hurting the market.

But you know what? As Angelo Mozilo from Countrywide Financial (CFC - commentary - Cramer's Take) said , only the Fed can save those who deserve loans from not getting them by reducing short-term rates.

Now we are going to be faced with many more declines like today because we know that one by one, these undercapitalized firms are going to go under. When they are finished, and only when they're finished, leaving, frankly, only Countrywide, you are going to see the Fed cut -- and not before then. The bottom is out in time because of the need for every last one of these companies to crumble, and there are still quite a few that haven't.

Even more painful: We all know it is going to happen but we have to wait until it happens before we can feel confident in buying this part of the market.

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