Cramer: What This Government Must Do

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

Confidence matters. But no one has confidence in anyone. Or anything.

I know that we on Wall Street are deeply cynical and untrusting. I also know that the president of the United States doesn't command the moral or political authority that the office needs.

Cramer: No Confidence, No Recovery

Still, I find myself asking, where is the president? Why wasn't President Bush on television last night explaining, in plain English, that we will see our way through this financial crisis, and that the money Treasury has spent is well spent. Or that your money is safe at your bank, nothing's changed. Or that the problems of Wall Street will be sorted out and the Treasury, the Fed and the regulators, who are well aware of the problems. Why is that so hard? Why not try to calm people? Perhaps the president thinks that Lehman (LEHMQ.PK) or AIG (AIG Quote) don't matter? Maybe he thinks that the Fannie (FNM Quote) and Freddie (FRE Quote) thing is too abstruse to talk about? Whatever he's doing, it isn't enough.

What else can be done? We need to have a break in the action here. We need to have the Treasury and the Fed on television saying that they will issue $300 billion in one-year paper that will be used to finance the purchase of distressed assets that do not have home equity loans attachments at 30 cents on the dollar for those who want to sell them. This matters, because right now we have no idea what anything in the mortgage market is worth. Nothing. So the tendency is to either value them at zero or overstate them (as Lehman did, thereby wrecking their credibility).

Why 30 cents on the dollar? Because given the underlying default rates, that's going to be a bargain if the government just sits with it. The 30-cent floor would also bring out real buyers who might pay a little more, knowing they have a place to go if they need it. There is no moral hazard here. If institutions didn't have to mark to market -- and there is no market -- we wouldn't be in this jam. I know that the accounting standards are being changed right now to loosen up, but it won't matter if there are no buyers.

We also need, as I have been calling for endlessly, a Home Mortgage Resolution Trust that can buy distressed mortgages from banks and brokers and then work them out over time turning absurd exotic mortgages into 30-year fixed mortgages that would keep hardworking people from being thrown out of their homes. Congress needs to be engaged.