TheStreet.com TV Recap: Hey Fed, Cut a Half Point
TheStreet.com Staff
12/10/07 - 02:43 PM EST
Tomorrow is a big decision day for the
Federal Reserve, and those who believe that all the market needs is a quarter-point cut in rates don't really understand the fragility of the system, Jim Cramer said on TheStreet.com TV's Wall St. Confidential Web video Monday.
Cramer said he doesn't know where people are getting this idea from. Traditionally, he said he understands the notion of gradualism; however, people need to understand that this is a tremendous moment.
Cramer: Half-Point Cut or Bust |
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Foreign-led buyers want to save a lot of companies that will go out of business only if they're going to be rewarded by a spike up in what is known as the net interest margin, Cramer explained. That is when cash rates go down and lending rates stay up, and the difference between the lending rates and the cash rates "gives enough of a spread that the banks can then take charge-offs each quarter against the spread" without wiping out earnings or capital.
"I don't get why people think that this is a process that can take its time," Cramer said. "It's of the essence ... particularly when we know that bank examiners are going to come in at the end of the year."
Right now, he said, the bank examiners are somewhat confused because of the federal government's plan for foreclosure forgiveness.
"It would be very difficult to try to figure out what's a nonperformer and what's a performer, but you need both," Cramer said. "You need lower rates and you need foreclosure forgiveness."
He said he wants a half-point cut because he doesn't want to pay for a bailout. "The longer the Fed dithers, the more likely the bailout will be gigantic," Cramer said.
Right now, people are wondering if the Treasury is bailing out foreclosure companies, he said. They are not bailing them out yet, but they will have to without a half-point cut.
Unless the companies that are putting money in get a reward from the Fed, "it's very difficult to think why you would want to be an outsider coming into our market," Cramer said.
