Jim Cramer fills his blog on
every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- a Dow makeover,
- his mortgage plan, and
- the folly of the traders' solution.
for information on
, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Extreme Dow Makeover
Posted at 5:34 p.m., Feb. 16, 2009
With the prospect of
filing for bankruptcy looming this week, it might be the moment for the keepers of the
Dow Jones Industrial Average
to do the housekeeping that we all know is coming. We know they don't allow bankrupt companies in the Dow. We also know they don't like single-digit companies. That means
Bank of America
could follow GM out the door.
So four slots are up for grabs. The financials are relatively easy. In place of Bank of America will most likely be
, which, at $66 billion --even as it falls rapidly -- still has some heft. The keepers of the Dow could go one of two ways for Citigroup, either choosing to view it as an international banking concern, which would mean that
is the pick, or as an international transaction machine, which means
gets the nod. Both are capitalized at about $48 billion, so that is six of one or a half dozen of the other.
General Motors and Alcoa are tougher. They are industrial companies, but the biggest industrial companies that aren't in the Dow don't really fit the mode. You could add
at $68 billion, but then you would have three oils, something you would like to do with oil at $135, not $35. You could choose to think New Economy and pick
at $112 billion or
at $89 billion -- both make sense.
, with an $88 billion capitalization, surely belongs in the Dow as a consumer goods play
a tech play. It is a natural.
, at $74 billion, could fit in if the keepers thought that Google was too new or too concentrated in its holdings. They are all more deserving than Alcoa, believe me. You would be way heavy on tech, but I think that's right, given how representative it is of the economy as we all see it.
You could go pure industrial, which would bring back
, which never should have been kicked out to begin with (like
). Or you could anoint
, a true industrial. Maybe it is worth considering
, as there are no pure defense plays.
Or if the issue is metals and mining, then it might be worthwhile to pick
at $20 billion.
, the country's largest steel maker, would make sense, but it is only an $18 billion company. Maybe a hybrid energy/ag play would make sense:
, at a bizarrely large $43 billion, could sneak in.
I know, I know, the Dow "doesn't matter." We hear that regularly. The
is far more important. No money's indexed to the Dow.
But tell me you wouldn't love to know who is coming in?
It's certainly worth handicapping.
And now you know my line.
At the time of publication, Cramer was long Cisco Systems, ConocoPhillips, Goldman Sachs, and Wells Fargo.
My Mortgage Plan
Posted at 10:52 a.m., Feb. 18, 2009
$75 billion for mortgages? Hysterical. Solves nothing. You want a plan? I have one, courtesy of my friend Matt Horween, who works closely with me every day and keeps me honest. Here goes:
First, we have to cut the principal of the mortgage. It is a hopeless issue without that, and an interest rate modification is a pure loser. The new mortgage should be given for 80% of the appraised value; the government can hire an army of appraisers, as we need to put people to work anyway. That's the level where most people would be able to stay in their homes. That's the virtuous circle with a drying up of new and old supply.
Second, the government has to offer 4% mortgages to
, so there is no moral hazard and so people can stay in their homes, which must happen if we are going to have house price appreciation. This 4% mortgage should be fixed for 40 years. Anyone who is in an owner-occupied home should be able to refinance at that rate, too.
Third, the servicers for the mortgage bonds, the CDOs, who are holding the whole system hostage, must modify the principal, too. They have fought this tooth and nail. Their resistance is stupid. Why? Because they aren't going to get paid without modification of principal for any of the 2005-2007 vintages, and they are clogging the system.
Fourth, banks that modify mortgages must be given a chance to make the money back. You do that with an override certificate. That would allow the banks to recover the full price of the old mortgage for any time in the next 50 years. Anything over the original mortgage goes to the homeowner. No home equity or second mortgage can be placed on the property without first paying off the override certificate.
Fifth, construct the override certificate as an asset in full value. That means they will not be dinged by the regulators for the potential loss that comes from changing the principal of the loan. This would save all of the banks from insolvency. The CDO holders get the same override certificate.
This plan has NO SPONSORSHIP whatsoever, but it will work. It is the only one I have heard that has a real solution, and it has little immediate cash outlay and does not forgive debt permanently, so it will fly with Congress. Even with the Republicans. No one who has an existing mortgage -- 90% of which are current -- would fight this plan. The banks would be able to get through this without nationalization. The housing supply pool would be reduced dramatically. The foreclosures would drop dramatically. There would be no points, and closing costs would be normal.
I have been ahead of the game on this housing issue for some time, right back to when I said in August 2007 that if the
didn't cut rates, buy mortgage paper and lower rates we would have a dramatic decrease in what I saw was a huge surge of foreclosures.
That didn't happen in time.
Now we have come to this modification of principal. It offers more to the banks and the mortgage servicers while keeping the homeowners in their homes and not breaking the Treasury bank. It is the best I could come up with and it makes much more sense than the nonsense I see Obama offering.
I will stay on this case and campaign for this plan endlessly, including behind the scenes with the FDIC.
It can work.
Heaven knows, we need solutions. This one's mine and my friend Matt's, and it will have the support of all involved.
The Traders' Solution Would Wreck Our Society
Posted at 2:13 p.m., Feb. 19, 2009
Sure, the rich traders on the floor of the Chicago options exchange, the crowd cheering when
's Rick Santelli went berserk this morning, are thrilled at the concept of ending the endless bailouts and letting the chips fall. Sure they want it to end. It raises taxes. It bails out the profligate. It is UNAMERICAN. It makes us lazy and stupid and unfair. Let everything fail. That's their attitude.
And I hate them for it. Look at what happened when we went with their course of action with
. Look what happened. The world ended. We were so worried about moral hazard in helping out the "bad" guys that we forgot the hundreds of millions of people who were hurt by the Chicago trader method. We wrecked out system of finance. We have not recovered. We have resorted to having to cut principal to get out of the housing issue. We have had to try to stabilize a teetering banking system that would most surely collapse if these traders had their way, taking us through a moment that would be much worse than the Great Depression.
Which leads me to some sobering truths. The Chicago traders are worried about bailing out
Bank of America
. They are worried about propping up the system. They want the
I am a student of history. Have they read any history? Have they? What do they think caused the Great Depression? How about an attitude just like theirs? Maybe they are all about betting the system is stronger this time. In this country, the Great Depression led to jobless, but the center did hold.
It did not hold in Europe. In the 1930s, Hitler came to power in part because of the total collapse of the financial system in Germany. He offered a way out. It was loved by the people. He was democratically elected.
The social unrest solidified the hold of Stalin and gave communism the boost it needed to take over a substantial part of the world.
This wasn't about whether the equivalent of Citigroup went to zero. It wasn't about the moral hazard.
It was about the real hazard: revolutions, genocide, social upheaval that obliterated the lives of millions. Fascism. In fact, I wish the ECB, which has been the worst (and the most Chicago-style) cared more about the rise of fascism than it does Weimar. Notice that when Germany said something about the need to be forceful in combating the problems, the euro went up and the dollar down. One of the reasons for the dramatic increase in gold is a fear that the euro could collapse from the lack of help by the ECB.
Ask yourself: Do you care about two or three trillion dollars being printed -- and it isn't all that inflationary considering the push downward from deflation -- if we avoid another World War II and the devastation leading up to it.
I sit here hoping that Geithner and Obama and the ECB and the BOE pull a rabbit out of a hat, not because of Dow 7000, but because of what could happen if they don't.
In my opinion, they just want to make it inevitable.
I hate to invoke class warfare. But for someone who was poor and lived in my car, I just feel different from these traders who, with their arrogance, just can wreck the social fabric of the country and the world. I think the bottom like on the Chicago approach is simple: the trains would run on time.
I also want to point out that my plan, which involves some sacrifice, would solve this. It does not have to be a drastic solution. But to not intervene is a disaster. And, by the way, while I am at it, understand that a Swedish plan would have the same effect as walking away, trader-style. If you thought Lehman was bad, this would be Lehman times 10.
The world is not prepared for those defaults, because, once again, you are simply begging for a Great Depression.
: Transports headed to eighth day of new low? Have you read the novel,
Waiting for Geithner
a survivor for certain. Nice boost.
can do the same. ... How about how great
is. Again, I salute Dan Fitzpatrick for his work on this one.
At the time of publication, Cramer was long Altria.
Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for
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