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TheStreet.com TV Recap: Distressed-Debt Gold Mine

TheStreet.com Staff

The defaulted-loans business is "fabulous" and "much better than the competitive nature of subprime," Jim Cramer said on TheStreet.com TV's Wall St. Confidential Web video Thursday.

Back when Cramer was working at Goldman Sachs(GS Quote), American Southwest Mortgage Group was a savings and loan company that was being defaulted.

At that time there was an opportunity to sell $1 billion worth of American Southwest mortgages, and even though the paper was worthless, "the number of buyers that you saw ... was remarkable," he told Gregg Greenberg, the host of Wall St. Confidential.

Today, Bear Stearns (BSC Quote) indicated that that's what it's doing, Cramer said. "They are moving mortgages to distressed debt, marking them up really big and giving you a better coupon.

"The brokers are making a huge amount of money on this," he continued. Most people are convinced there is no way the brokers aren't lying here, but "having sold paper on the fly of defaulted, bankrupt and criminal savings and loans, I can tell you that's a lot better than selling paper that's involving people who own homes."

When Greenberg asked Cramer to rank his top brokers in light of the subprime concerns, Cramer said that because "there is a perspective that mortgage is bad and people haven't woken up to the fact that it could be good, Goldman Sachs is No. 1."

Broker Lowdown

Goldman, which Cramer owns for his charitable trust, Action Alerts PLUS, is beginning to get the benefit of the doubt now that Lehman Brothers (LEH Quote) and Bear Stearns have reported, he said.

"I think the stock is going right back to $250," Cramer said. "I would buy [it] aggressively today." The stock was trading around $200 during the early afternoon.

Bear gets the No. 2 slot because it was "much more proactive than Lehman in terms of turning the mortgage morass into something really positive," he went on to say.

If people want to short here, Cramer said he would short Merrill Lynch (MER Quote) because it has been less proactive as it's still just getting into the mortgage business.

On a separate note, Cramer told Greenberg that the bounce in Accredited Home Lenders (LEND Quote) and IndyMac (NDE Quote) is due to short-covering.

After yesterday posting a Dirty Dozen list of stocks everyone is shorting, Cramer said that now all the firms are reacting to it and saying they don't belong on the list.

"I never said they did belong on the list," he said. "It is a list of companies that are being targeted, not of companies that I believe should go down."

In fact, Cramer said he'd be more inclined to be long the list than short it.