TheStreet.com TV Recap: Seeing More Clearly on CDOs

Cramer sorts out the bad apple companies on collaterized debt obligations.
Author:
Publish date:

Until now, what market players have lacked is any sort of transparency as to what bad collateralized debt obligations are, Jim Cramer said on TheStreet.com TV's Wall St. Confidential Web video Thursday.

However, now people know that home-equity loans issued and purchased by

Novastar

(NFI)

,

Fremont General

(FMT)

,

New Century Financial

,

American Home Mortgage

and perhaps

Washington Mutual

(WM) - Get Report

and other mortgage originators that went belly up, were bad, he said.

How to Weed Out the Bad Financial Stocks

var config = new Array(); config<BRACKET>"videoId"</BRACKET> = 1322221343; config<BRACKET>"playerTag"</BRACKET> = "TSCM Embedded Video Player"; config<BRACKET>"autoStart"</BRACKET> = false; config<BRACKET>"preloadBackColor"</BRACKET> = "#FFFFFF"; config<BRACKET>"useOverlayMenu"</BRACKET> = "false"; config<BRACKET>"width"</BRACKET> = 265; config<BRACKET>"height"</BRACKET> = 255; config<BRACKET>"playerId"</BRACKET> = 1243645856; createExperience(config, 8);

These companies, Cramer said, issued bad home equity between 2005 and 2007, and if people purchased it as

E*Trade

(ETFC) - Get Report

,

Wells Fargo

(WFC) - Get Report

and

Citigroup

(C) - Get Report

, which he owns for his charitable trust,

Action Alerts PLUS, did, then they're in trouble with them.

"You have to take charge and get them off your books very quickly," he advised. "We got this at Wells Fargo and that's great."

If investors can find mortgage-backed bonds that were not originated by Novastar, Fremont General, American Home Mortgage or New Century Financial, then they may be buys, Cramer said.

"We're finally getting clarity," he said. "We know that loans that were purchased from these clowns can't be owned. But it also means that we can purchase pieces of paper that may have been from 2001 to 2004 and 2007 paper beginning in July is safe, too."

Cramer said in 1989, when he was trading bonds what he looked for were pieces of paper that didn't have anything to do with the southwest. He said he'd ask if it had any California or Texas exposure and if it didn't he would buy it.

"That's where we're getting in mortgage backeds," he said. Otherwise, "you never hear if it's Novastar, New Century Financial,

etc. you can't touch it."

At the time of publication, Cramer was long Citigroup.

Jim Cramer is a director and co-founder 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

Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. Click

here to order Cramer's latest book, "Mad Money: Watch TV, Get Rich," click

here to order his book, "Real Money: Sane Investing in an Insane World," click

here to get his second book, "You Got Screwed!" and click

here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by

clicking here.

TheStreet.com has a revenue-sharing relationship with Traders' Library under which it receives a portion of the revenue from Traders' Library purchases by customers directed there from TheStreet.com.