Jim Cramer gets upset with reason - 8.7.2007.1

So I was checking out a few things when I ran into this conversation by Mr. Jim Cramer. Actually I can’t really call it a conversation. It’s Mr. Cramer going off about his concerns. This is perhaps the most passionate I have ever heard him be. And I understand exactly why.

I’ve mentioned before that I am a former stockbroker. I’ve had years of experience and have spoken or listened to maybe hundreds of analysts and CEOs. I’ve come to understand the relationship between the markets, data, investor impressions and institutions both domestic and international. Given this I have a bit of understanding of Mr. Cramer’s words that some I’ve read do not. He may be blustering and a bit of a showboat, but he is no idiot.

Here is the actual footage –


The fact is that if you are an investor in the market, you should be concerned as well. Things are not going well and they will probably get worse. For all the naysaying of many democrats (and a couple of Presidential candidates) the economy has been doing well. That has a lot to do with the low interest rates and the boom that has persisted in the housing market. Couple that with investor impressions and you get most of what the market has been for a while now. But interest rates are on the rise and the evil some men do is coming to term.

When I say evil I mean the vultures that sought out the uninformed and ill-advised that were convinced to take on high-risk variable rate mortgages. Whether they are White or Black, most were less educated in the ways of markets and were not prepared for what would happen if rates increased. I don’t know how many people took advantage of the low rates being offered to take second-mortgages to cover rising healthcare costs or to keep up with the Jones’ and get new cars or some other such. How many ads are still being shown on TV advertising the homes that can be bought for as little as $1000 if you just call a 1-800 number for details.

For whatever the reasons, I estimate that the last 5 years has caused more people than are being estimated now to take on a home. I would say 10-20% of them were older people that took on risky second mortgages and 10-20% were mislead about the eventual cost of a first mortgage. I guess it could mean a total of about 10 million are in danger of defaulting on their loans.

If so many were to do so, banks and financial institutions would take significant losses. Profits would shrink as they are used to cover the defaults. Credit would tighten, causing some small businesses to fold, middle level companies to stagnate and fire employees and large corporations to increase prices. Unemployment goes up and the GDP of the nation drops.

Continued in Part 2...