Here Comes the Panic

It's here. The panic that comes when the central banks get it all wrong and the recession talk begins to seep worldwide.

This is the self-fulfilling moment when we all recognize that any hopes we pinned on central bankers looks misplaced and the bears growl worldwide.

I know domestically it makes some sense. I say some, because when you see the strong report from a company like GE (GE - commentary - Cramer's Take) you have to wonder whether all of this could have been prevented by swift action and large cuts when it was still easy to prevent.

Remember our crisis here involved only housing. The rest of the world was strong. Had we cut aggressively to move the real estate overhang -- people still need homes! -- we had a shot but now it appears too late.

What's the domino play? We know that what's left on the banks sheets after the selling is paper that looks like AAA but is actually lower because a lot of it was BBB but was enhanced by insurance that really isn't going to hold up so will instantly be downgraded to BBB where it will have to be sold by a great many institutions that insist on their holdings being all AAA. When that happens the glut will be catastrophic and the sell-off awful.

While in the end it is only $400 billion in paper that is at risk, much of it is really is at risk with no hedge and when it goes there will be financial chaos, even though only a portion of it is really toxic.

There is no plan to save the monolines, which would allow some of the insurance to make it so the bonds that the not great residential mortgage paper backs defaults. We have Darwinists in treasury and the Fed who truly believe that it won't matter.

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At the time of publication, Cramer was long C.

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