How Bear Stearns' Subprime Bets Really Cracked

On good paper, the prime and various degrees of A-rated paper, the default rate is the same historic 2%-3% at worst because the employment rate has remained steady and that, not the speculators' game, is making these mortgages very attractive as pools even now. You see them bought all the time; more than $2 billion of decent paper, even of the so-called toxic subprime variety, traded at 97 cents on the dollar recently when Accredited Home Lending sold its portfolio. And that was considered one of the worst, right up there with New Century, Fremont General (FMT - commentary - Cramer's Take) and the rest of the rogues' gallery.

Keep that 97-cents-on-the-dollar number in mind; it holds the key to the story because it represents the current market, having just traded. It is also important because the seller was distressed so it wasn't like a good owner selling to another good owner. (Can't figure out bonds? They bought the stock at $100 and despite all the worry, they sold it at $97, even as the media would have you believe they sold it at $80. It's all in the public documents, for those too lazy to check, including many reporters.)

Back to the plot: Now Dumb and Dumber are getting more frantic.

Editor's note: Check back Friday for the next part in the series, in which Cramer describes how hope failed in this dire situation.

Be sure to read Part 1, Part 2, Part 3, Part 5, Part 6 and Part 7.

At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.

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