Wednesday, August 08, 2007

Subprime Mortgage Meltdown - Armageddon and the Fed

Ben Bernanke and the Federal Reserve Bank did not react as hoped to Jim Cramer's impassioned plea to cut rates and open the discount window, yet Cramer is now optimistic that rate cuts will come in October and that Government Sponsored Enterprises like Fannie Mae will take on some of the affected sub-prime mortgages - most are non-conforming, e.g above the ceiling set annually by Congress in October - but this would take an irregular intervention by the President of the United States and Congress.

Commenting on the Fed announcement, Cramer said, "What we got was, frankly, what we needed, and we rallied." The Fed decided to allow the interest rate to remain at 5.5%, a move Cramer says shows the Fed "may be heartless, but its not clueless." He predicts the Fed is heading towards a rate cut, which he thinks will happen in October. He also detected a hint at government intervention to solve the housing crisis, and Cramer thinks the Treasury Secretary or the President may ask Fannie Mae to help relieve some of the credit pressure. In the meantime, Cramer would buy defensive stocks such as K, SLB and KMB and would concentrate on oil, agriculture and infrastructure.

[Jim Cramer blog]

Instead of bailing out failed mortgage companies (an saving jobs in that industry) I reckon that it will be better for the long term sustainability if we allow those firms to fail and provide those out of work from these credit market/white-collar thievery positions to get retrained in some area of the economy with real, primary productivity. That, and they need to learn how to live greener, slower lives, with smaller carbon footprints than they may have been living when hedge funds and home mortgages fueled the whole carnival. If you are now unemployed due to the credit market meltdown, here is my advice to you: retrain, enjoy your unemployment. Take your kids out day care for a week, bake your own bread, make your own soap, plant a garden. Go to a regular peace vigil, lobby congress as a citizen with a wider view than your narrow economic self-concern.

As a society, we should care more about the thousands of employees who are laid off by these closures and bankruptcies than the wealthy gamblers that chased unsustainable returns over the precipice. Making sure they get their unemployment benefits, their retraining educational assistance, interim health care needs met is far more important than temporarily shoring up a doomed industry.

On the currency front, the management of inflation concerns trumping near term concerns of instability in the markets maintains some confidence in the dollar. You can trust that it won't lose all of its value if you pack in to your mattresses, but you may not be able trust Americans to use it as capital - U.S. stocks lost about $1.26 trillion in market capitalization since benchmark indexes reached records in July as banks restricted credit because of rising defaults on subprime mortgages. If you have extra cash, you might want to risk it, not chasing returns and more profits, but instead on trying to change the world for the better, to inject some serious interest in sustainability into the minds of the American public, who continue to consume the bulk of the available global energy resources and generate, for the most part, only self-poisoning stress, worry and war to capture foreign resources to squander senselessly.

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