Cramer: Short-Seller's Paradise

Right now almost every bank that is not dead is loaded to the gills with impossible-to-mark and -price mortgages. Again, if I were short I would like to keep it that way. As long as there is no possible marking, the current system is going to rely on the last price, and right now the last price for a lot of this stuff is a lot closer to zero than par. Given that's the case, we can only guesstimate and we will guesstimate something that is probably below where these mortgages will be if we can play them out and work them out.

Again, if I am short, I want marked-to-market because that will wipe out most banks. If I wanted most banks to go under, I would stick with marked-to-market for certain.

What can replace marked-to-market? We could get an organization that could buy mortgages, sit on them and hold them and work them out, but no bank can afford to do that. With no such organization, I would like to be short the market and the banks because the banks would all go under eventually -- there are that many mortgages out there that could be valued at close to zero if house price depreciation continues unabated -- and the market would go down because there would be a lack of credit and no expansion and gigantic layoffs.

But with the organization that could purchase mortgages at a reasonable price and work them out instead of foreclosing (which is what the banks have to do to get them off their books, thus creating further price depreciation), there is a chance for gradual house price stabilization that would reveal many of these mortgages as worth something, not nothing, which is pretty much to what marked-to-market is giving us.

With the organization, there is a fighting chance to take the systemic risk off the table.