Cramer: Blame the Mortgage Insurers

The blowhards and bluff artists and the Gang of Four -- Ambac (ABK), MBIA (MBI), MGIC (MTG) and PMI (PMI) -- truly have blood on their hands for this moment. So do the ratings agencies, the mortgage insurers and the salespeople who packaged undocumented loans and pushed buying homes with no money down.

The whole apparatus stinks and we are now seeing the unwinding, but I think that the false assurances created by the Gang of Four and their insistence to not worry made everyone way too complacent. Their glib promises as well as the incredibly lax work of the ratings agencies, S&P and Moody's, enabled the whole edifice to be propped up.

And once it was clear to them that they needed more capital, they chose to forgo the window and attack the shorts. Had they raised the capital they needed and had the ratings agencies said they can't bless any more of this junk, we might have never been in this spot.

But we are there. The big problems that everyone has from Fannie Mae (FNM)to Freddie Mac (FRE) to Bank of America (BAC) to Washington Mutual (WM), frankly, aren't the defaults. The default rate for FNM mortgages is amazingly low, around 1%.

But it is the personal insurance behind those mortgages -- made by PMI and MGIC -- that may not hold up, and that's the layer of help that allowed Fannie and Freddie to be so thinly capitalized. We saw the same thing happen throughout Wall Street and with many banks. The insurance may not hold up, so the reserves are therefore way too low.

A few months ago, we were fretting that the collapse of these monolines could put everything in jeopardy. Somehow, because they haven't "collapsed" per se, we thought we had skated by this issue. We haven't. The unwinding of these two companies and the reserves that must be boosted -- because they can't be counted on -- is behind a lot of these capital raises and behind the lack of belief in anything any financial says.