Maybe it was always Fannie Mae (FNM - commentary - Cramer's Take). 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 - commentary - Cramer's Take) or Bear Stearns (BSC - commentary - Cramer's Take) 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.
Jim Cramer Blog Beware the Speeding Train Effect in Oil Stocks 3/19/2008 6:05 PM EDT When the funds start selling, the unnatural pressure reflected in stock prices often freak out regular investors and crush stocks.
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