Agencies Whistle Past the SCA Graveyard

No one can blame anyone for being confused about financial guarantees.

Consider the case of Security Capital (SCA - commentary - Cramer's Take). Here's an organization that has tremendous insider buying and the full support of the regulatory agencies for being well-capitalized, even as the CDOs it insures and the residential mortgages it backstops would have to be among the highest risk imaginable.

It is hard to imagine a more toxic brew than what SCA has on its hand, save E*Trade (ETFC - commentary - Cramer's Take). The company has minimal reserves set up for about $105 billion in guaranty risk, including about $8.9 billion in residential junk -- which is, of course, highly rated (talking about home equity loans and subprime loans) -- and it has reserves of $81 million.

That's just a catastrophe waiting to happen. Yet you probably have not heard one word about them.

How can this be? Because who's going to enforce it?

The SEC? It has its hands full. The market? Somewhat, but then the stock is down to $5.

It just doesn't make any sense. It's just a walking disaster, but nobody minds and the agencies are taking their time getting there to take a hard look.

They don't want to cause a panic, I guess.

But I would be panicked if I worked there or owned shares in it!

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Security Capital to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

At the time of publication, Cramer had no positions in stock mentioned.

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