Mnuchin Deal for IndyMac Is a Great Sign

We got out of the 1989-1990 S&L debacle -- which, we often forget, wiped out almost every savings and loan besides Golden West and Washington Mutual (and we know how those played out this cycle) -- by gigantic government giveaways that made anyone with capital feel like a chump for not buying a savings and loan from the RTC.

Here we are again. Easy terms by the feds, and we have private capital -- unscathed from bad investing in the sector -- stepping up and buying IndyMac. The outrage is palpable from the usual sources, including from my friend Peter Eavis, who correctly points out in The Wall Street Journal this weekend that this was a sweetheart deal for these hedge fund managers, and not for the government. He's smart, he's right, and I said, hallelujah.

If we are ever going to get the private sector to wake up from its Rip Van Winkle status, the government is going to have to start giving individual investors and hedge funds and private equity firms some wins, something tempting, which is what the investment banks -- remember them? --used to do after a spate of underwritings got creamed from the get-go. After the TPG destruction in Washington Mutual, the hedge funds and private equity have avoided this sector like the plague. Now, Steve Mnuchin, son of my old boss at Goldman (GS - commentary - Cramer's Take) and a really smart -- AND GREAT -- guy, is jumping in as CEO of IndyMac. If people as smart as Mnuchin want in, you want in too, although it is helpful to remember that the FDIC has already restructured IndyMac and absorbed tons of the bad loans. It is also the lab for what works and what doesn't when it comes to workouts.

We needed a new player in this game. Neither Wells (WFC - commentary - Cramer's Take) nor JPMorgan nor U.S. Bank (USB - commentary - Cramer's Take) is in shape to step up here, as they are all digesting Wachovia, Washington Mutual and Downey and can't add another underperformer to the mix. IndyMac is particularly bad for its high percentage of liar loans, but as I have said for almost a year now, residential real estate will bottom in 2009, and there are ample signs that the hardest-hit real estate in California -- the Inland Empire -- has started to go back up after 40% declines.

When you add in that rates are headed to 4.50% for conforming loans -- we don't know how many IndyMac has in those for refinance, but we do know that buyers will be flushed from the sidelines -- you might want to get into the banking business, too.

There has been plenty of intervention by the federal government to try to make the credit markets work again, none of which has produced much lending to speak of, although, bizarrely, the great data from The Federal Reserve Bank of St. Louis -- repository of the facts and figures of lending -- indicate no real downturn. The big knock on the government, though, is that it is taking over everything.

It is nice to see it return something to private capital, even if it is doing so at a big loss to the taxpayer. Mnuchin -- teamed up with a lot of other guys, including noted real estate short-seller John Paulson (another great sign given how negative he's been) -- is the best sign yet that the terms have gotten so sweet that others are jumping in.

I don't think that the banks are going back to pre-Lehman levels anytime soon. I do think that new banks have a better shot, as they are not burdened with expensive preferreds and can float equity rather fast as "clean banks."

This Mnuchin solution is a good one for the economy, which, alas, will end up being great for the taxpayer down the road, even though the outrage seems spot-on, not misplaced, at the moment.

Random musings: Outrageous self-promotion -- the paperback version of my book Real Money is out today. Good for the pros ... better for those who want to go pro.

At the time of publication, Cramer was long Wells Fargo, Goldman Sachs and JPMorgan.

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