The consumer is reliquifying, and at a pace that has every model going haywire. He is paying off debt way ahead of schedule, pocketing cash and keeping it on the sidelines, where he is paid the highest amount of return for no risk.

Everything is upside down.

In the meantime, a whole industry that was based on the consumer's attitudes, the securitization business, is being decimated. The idea of pooling anything that the consumer has done, auto loans, home equity loans, mortgages, has backfired. The consumer wants out of these pools and is voting with his refi's.

The effect is astounding. Incredibly well-run companies like

MBNA Corp.


are getting killed. The savings and loan industry has seen its book of loans -- its assets -- dwindle almost overnight. In the meantime, all new loans are being offered at rates that make them losers from the moment they are issued. But there is no place to put them, to securitize them, because nobody wants them.

The normal endgame buyers of these glops of paper, the hedge funds, have no capital left to take new paper. Neither do the

Criimi Maes

(CRM) - Get Report

, which normally would take down anything creditworthy. So the paper is stuck in inventory, where it has to be financed at incredibly high rates versus what it yields.

In normal times this would be great. They would invest the newfound money in stocks after they had paid down all of that debt. But stocks have become too risky, so it sits in cash, where only the consumer makes money -- and everybody else who has been charged with trying to invest it gets winnowed out.

The result? The stock market you see in front of you. Credit card issuers, banks, brokers, companies that package mortgages of any kind, companies that issue credit card debt, even companies that do home equity loans, are getting killed. This very profitable securitization business has simply ground to a halt.

People just want Treasuries. And institutions just want long-term Treasuries. They want the liquidity. They don't want to be down on paper the moment they buy it, which is what happens when the bid and offer widen so much.

That's why our market has become so treacherous. All of the models for so many companies involved in finance are betraying them, in the same way that the models betrayed

Long Term Capital

. Of course, when this period is over there will be bargains galore as the newly liquified consumer tiptoes out of cash, which must yield much less, thanks to a


that has to be seeing this, and into the stock market.

But the Fed knows this will happen at the drop of a hat. And the Fed does not want what happened in Japan. The Fed doesn't want you to use margin to buy stocks. And it does not want Japanese P/Es. The Fed holds the key and it does not want to use it yet. Not until the consumer is reliquified and the stock market is much lower.

It looks like the Fed will get its wish.


Random musings:

See you on Squawk. Can't be upbeat. Sorry.

James J. Cramer is manager of a hedge fund and co-chairman of

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to at