Thornburg Spells the End for the Gang of Four

Thornburg Mortgage (TMA - commentary - Cramer's Take) seems to be the template for all of the pending failures in this market. Recall what TMA did -- it came on TV endlessly and told you things were fantastic, that it was a better lender, that it had fewer defaults and that the business was fundamentally sound. Execs bought stock, which made you think either they are idiots or were just trying to paint the tape -- make it look better.

And then they diluted the stuffing out of it, issuing hundreds of millions of shares.

Take a look at MGIC (MTG - commentary - Cramer's Take) today, a personal mortgage insurer I seriously doubt can survive. OK, shudder, Cramer doesn't know what he's talking about. He's overstretched and given to hyperbole.

Good, we got that out of the way.

Given how right I have been on the Gang of Four -- MBIA (MBI - commentary - Cramer's Take), Ambac (ABK - commentary - Cramer's Take), MTG, PMI (PMI - commentary - Cramer's Take) -- that I would still be questioned is a little ludicrous, but being called a moron and a fool and someone who screams and frets needlessly, I thought it would be good to put the caveats in myself.

MGIC just authorized an additional 160 million shares on top of 300 million shares. That's called dilution. It is what we have seen time and again from these under-reserved mortgage companies. It is necessary to keep up the charade of solvency so it can still write business and those who need the companies -- PMI is the other one -- not to default don't have to write down the value of anything insured by these dopes. This refinancing is important for the fiction being maintained by Freddie Mac (FRE - commentary - Cramer's Take), which relies on the MTG and PMI guarantees and another one, Radian (RDN - commentary - Cramer's Take), to avoid catastrophic losses. As long as they go through the motions of dilution that FRE can keep using them, and more important, doesn't have to write down the mortgages currently insured by them.

This charade, along with the charade of the insurance of the complex instruments that contain bad mortgages by MBIA and ABK, is vital to be able to string out these companies' lives so they can get more suckers to invest in them. That keeps them alive longer so that they may make it through the ending of the house depreciation cycle.

Of course, I have no hope in that whatsoever and believe the losses in these companies are staggering.

The template of TMA really needs to stay in front of you because that 27-cent company was worth 100 times that last year at around this time.

I suspect that every stock in this piece will suffer a similar fate. Why? Because, of all things, TMA was the best of them.

Now, the endless apologists will say, "Cramer has no idea that TMA is nothing like these other companies."

To which I say, wrong. They all need house price appreciation to survive. It is the common denominator. And does anyone remember what happens when you divide by zero?

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

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