Jim Cramer is becoming known for his little rants he pulls on TV nowadays and he did it again! This week's target: Hank Paulson, U.S. Secretary of Treasury. Cramer claims that Paulson can save a lot of potential problems by saying that the government will back up Fannie and Freddie paper, but it is very unclear if the government will buy some of these mortgages even though they are selling for relatively cheap. Buying the mortgages will settle some of the problems the markets are experiencing resulting less short term rate cuts will make the future battle on inflation much easier. Pretty soon Jim Cramer might not have any friends left on Wall Street.
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3 comments:
I don't follow Cramer so I'm not familiar with the context in which he made this assertion, but the idea that the federal government could/should guarantee freddie and fannie paper is absolutely ludicrous in my opinion. The fed gov't isn't in the business of speculation or for that matter in the business of outright securitization. Precisely the reason why Freddie and Fannie exist and don't have absolute guarantees from the federal government. From my understanding of their quasi-government-backed business models, their cash flows have to be accordingly hedged so they don't take any actual exposure. Their guarantees on subprime loans that on reset qualify for prime rates is only a nominal guarantee in that they'll never have to pay anything for them. Those individuals who qualify for prime rates are unlikely to default in current market conditions anyway. This is an unpopular idea on the street but any claims for liquidity purposes that the gov't will buy subprime MBS without absolute confidence that liquidity can be restored independently later on is simply speculation on their part. Any thoughts on how/why the federal government could legitimize the buying of freddie/fannie backed paper?
no thoughts other than agreement.
I studies the accuracy and one year returns of Jim Cramer's Jan 2007 stock picks. And guess what? The result is (not) surprising for someone who claim to know everything.
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