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Is the subprime meltdown creating a Financial Armageddon? If you’re Jim Cramer—the blustery former hedge fund manager who now is an
entertainer commentator on CNBC—you think so. This video clip of Cramer from an appearance on CNBC a couple days ago has been making the rounds on the Internet, and is pretty amazing, even for Cramer. He’s screaming that the Fed is asleep at the wheel, and desperately needs to open the credit window and cut interest rates (we’ll see what they announce at 2:15 today, but I’m betting the Fed does nothing) to keep Wall Street and the economy afloat.
What has market mavens/commentators/carnival barkers like Cramer worried is that the Fed keeps interest rates too high and doesn’t provide enough liquidity, so that we repeat the mistakes that Japanese regulators did in the early 1990s, when, as this thread on iTulip shows, high interest rates…
... helped take down the economy and lead to a decade of stagnation...
Frankly, I'm not sure even if the Fed cut interest rates whether that would encourage lenders to lend. I think the markets and the economy has to work its way through the subprime/mortgage mess, give lenders time to re-establish their equilibrium until they can assess the true default risk on various categories of loans, given that their past models have proven to have failed. I don't know that a quarter-point cut in rates is going to help that process.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.