Cramer: "Yes, We Really Need a Half-Point Cut"
Enviado: 10/12/2007 16:38"Yes, We Really Need a Half-Point Cut"
By Jim Cramer
RealMoney.com Columnist
12/10/2007 10:14 AM EST
If one more commentator says a quarter-point interest rate cut at tomorrow's Fed meeting is enough, let alone "We don't need a cut," I think I will scream.
There's so much trouble out there, and the most important trouble-avoidance mechanism isn't the convoluted foreclosure forgiveness plan but anything that allows banks to make more money so they can take charge-offs against those gains.
That's how it worked back in 1990; you need to boost the net interest margin so banks can lend and make big money because that helps forestall a recession, too. With an expansion of net interest margin and with the foreclosure forgiveness, which allows the examiners to go easy on the banks and preserves the capital of the mortgage insurers, the country can see a way through this mess.
But if we are going to be endlessly incremental about this problem with quarter-point cut after quarter-point cut, some of the more damaged banks and mortgage issuers will not make it.
This is an easily avoided problem, one the Fed can still solve without the U.S. government having to bail out Fannie (FNM - commentary - Cramer's Take - Rating) and Freddie (FRE - commentary - Cramer's Take - Rating) and the mortgage insurers. Believe me, that will happen if the Fed continues to go incremental with small cuts. Who wants that? Who is that good for?
No one.
Which is why it is so ridiculous to suggest that a quarter-point cut would be good for the market. We have too much pressure in the system to take our time and do it wrong.
The day is upon us to see if we are going to have another wave of crises.
I have given up predicting this Fed. These governors are fickle and often foolish.
But the mission's real clear and the task of giving the market a half-point cut to avoid a bailout that would make the Resolution Trust Corporation (RTC) tiny -- remember, there are at least $500 billion in defaulted mortgages kicking around -- must be met.
A half-point cut would encourage more private investment like we saw with Citigroup (C - commentary - Cramer's Take - Rating) and what we see today with UBS (UBS - commentary - Cramer's Take - Rating). A quarter-point cut keeps the U.S. government on the hook, and that's good for nobody.
So let the quarter-point chatterers keep chattering, But they have no idea how reckless they are being.
At the time of publication, Cramer was long Citigroup. "
(in www.realmoney.com)
By Jim Cramer
RealMoney.com Columnist
12/10/2007 10:14 AM EST
If one more commentator says a quarter-point interest rate cut at tomorrow's Fed meeting is enough, let alone "We don't need a cut," I think I will scream.
There's so much trouble out there, and the most important trouble-avoidance mechanism isn't the convoluted foreclosure forgiveness plan but anything that allows banks to make more money so they can take charge-offs against those gains.
That's how it worked back in 1990; you need to boost the net interest margin so banks can lend and make big money because that helps forestall a recession, too. With an expansion of net interest margin and with the foreclosure forgiveness, which allows the examiners to go easy on the banks and preserves the capital of the mortgage insurers, the country can see a way through this mess.
But if we are going to be endlessly incremental about this problem with quarter-point cut after quarter-point cut, some of the more damaged banks and mortgage issuers will not make it.
This is an easily avoided problem, one the Fed can still solve without the U.S. government having to bail out Fannie (FNM - commentary - Cramer's Take - Rating) and Freddie (FRE - commentary - Cramer's Take - Rating) and the mortgage insurers. Believe me, that will happen if the Fed continues to go incremental with small cuts. Who wants that? Who is that good for?
No one.
Which is why it is so ridiculous to suggest that a quarter-point cut would be good for the market. We have too much pressure in the system to take our time and do it wrong.
The day is upon us to see if we are going to have another wave of crises.
I have given up predicting this Fed. These governors are fickle and often foolish.
But the mission's real clear and the task of giving the market a half-point cut to avoid a bailout that would make the Resolution Trust Corporation (RTC) tiny -- remember, there are at least $500 billion in defaulted mortgages kicking around -- must be met.
A half-point cut would encourage more private investment like we saw with Citigroup (C - commentary - Cramer's Take - Rating) and what we see today with UBS (UBS - commentary - Cramer's Take - Rating). A quarter-point cut keeps the U.S. government on the hook, and that's good for nobody.
So let the quarter-point chatterers keep chattering, But they have no idea how reckless they are being.
At the time of publication, Cramer was long Citigroup. "
(in www.realmoney.com)