This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Cramer: An Elegy for Fannie and Freddie

This post appeared earlier today on RealMoney . Click here for a free trial, and enjoy incisive commentary all day, every day.

At last, we have now found our own Resolution Trust Corporation for this era of overbuilding. In fact, we have two of them: Fannie Mae (FNM) and Freddie Mac (FRE). That's right, we know they are both out of capital, and unlike the ne'er-do-well banks -- almost all of which seem now slated to disappear in one giant bear-market orgy -- there are no saviors.

The dissolution of these two companies is the height of irony. President Bush made it his sub rosa mission to end the hegemony of these two Democrats-in-waiting companies. I don't even think he understood what the guarantee was or what they were supposed to do. That would take a lot of time to figure out. He probably just said, "We have banks, good banks, like Washington Mutual (WM) and Countrywide; why do we need Fannie Mae, which just makes money for the Democrats?"

How To Play Fannie Options Now

So, over a multiyear scheme, he hamstrung the agencies and let the private banks take over lending and securitizing pretty much anything, because homeownership was another one of his themes, of course, aided by the Fed's insistence that exotic mortgages, especially weird adjustable types, made the most sense.

That created the madness of speculation boom, and now bust, that wiped out almost all of the mortgage issuers, and now, because Fannie Mae and Freddie Mac were at last invited into the party, them, too. They lowered their standards, believed in the fiction of personal mortgage insurance and didn't know they were often being scammed like everyone else.

Now, if they had to be reserved properly, they would be insolvent. But here's where it gets tricky. They were only stroke-of-the-pen operations anyway, relying on an implied guarantee of full faith and credit, something that this administration has not re-implied at any time.

With the companies radically under-reserved even by the bulls' admissions, the equity has to be crushed and the bondholders take over. But that doesn't provide the capital that is needed for the company to keep securitizing. That's going to be the job of the government, because it will have to take these two over in the end.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs