Treasury Secretary Henry Paulson is looking to address the subprime mortgage issue by freezing interest rates for select home loans, Jim Cramer said on TheStreet.com TV's Wall St. Confidential Web video Friday.
Cramer said he turned very positive on Monday, as soon as he learned that Abu Dhabi had put money into
. "That was it," he said. "Then you knew you had a 1990 situation."
But what people have been lacking is direction on whether or not "they should buy these big pools of bad mortgages knowing that the rates are going to be reset up and up so that each month you're going to get less money in," Cramer said. "Paulson is proposing, and it looks like it's going to happen, no more resets. They're going to keep those rates down.
Cramer: Subprime Dragon's on the Run
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"The reason he's doing that is quite simply that there's no servicing component," he explained. "The big servicers,
, would have to hire hundreds of thousands of people to service all these mortgages when people are not paying them. So you take that off the table."
It also takes off the table the massive default issue because the rates are kept the same, Cramer continued. This makes it so that people don't want to walk away from their houses.
Then, one by one, Countrywide, Wells Fargo and Citigroup, a stock Cramer owns for his charitable trust,
Action Alerts PLUS, all go from a sell to a buy, and
goes from sell to a hold, because their dividend is still too high, he said.
"This puts in a bottom," and during the bottom in 1990, people caught triples in Citigroup and
Bank of America
, Cramer said. "There's a tendency to want to think the move is done, but people haven't missed it."
Chairman Ben Bernanke should do is cut interest rates, he said. "The banks aren't going to be able to make any money on the increase in rates, but they can make money on the short end," Cramer told viewers. "They pay you less and lend you more -- it's a home run.
"Until we got to a point where the banks themselves couldn't handle the problem, it was never about the people who borrowed the money; it was about whether the banks could handle the problem, and the banks clearly this week said they couldn't handle it, so the Treasury had to get involved," he said.
At the time of publication, Cramer was long Citigroup.
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