Looming Recession Update: Wall Street Thinks They Know Something

I saw Jim "Mad Money" Cramer yesterday say that "if the Fed doesn't cut interest rates by a half-point, we're in for a major recession." They went a quarter-point, and the Dow is down 250 points.

Sometimes these things take on a kind of self-fulfilling prophecy. Cramer and his buddies want the financial industry to be bailed out for their own mistakes, and making credit easy to obtain is a key element of that. Really the banks want to avoid prosecution from the entities who they pushed the risky securities onto.

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."

The banks created this shady system, and eventually they're going to have to jump into the shitpile head-first. And the rest of us, in California and throughout the nation, are bracing for the fallout.