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Bloody and Bloodier

What can thaw this nuclear winter? What can cause these markets to defrost fast enough to save the jobs, and home values, of the rich in New York, if not the newly poor and evicted in Rancho Cucamonga? Spooked by the news that major foreign banks are now getting hit by the lending crunch, investors took stocks down sharply last week, prompting Fed chairman Ben Bernanke to order up a quick injection of liquidity into the system on Friday. I think the Fed will also cut interest rates soon—certainly sooner than it otherwise would have. That said, this Fed has been famously inflation-wary, and it may be reluctant to loosen rates too much, lest it overheat the economy, especially since the Fed seems to believe that the nonfinancial economy, the part not connected with home building or lending, is thriving. Of the 30 stocks in the Dow Jones Industrial Average, only two, Citigroup and JPMorgan, are directly connected to this mess. If Bernanke’s right, and the rest of the economy is as solid as he seems to think it is, it’s possible the lending crisis could be contained to only those who work in and around the credit business. But that’s a big if. If the lending debacle keeps spreading, or the rest of the economy heads south, the Fed may find itself too far behind the curve to do much good.

Who else can unlock the jam? Maybe we get some help from overseas, a Chinese buyer of a major brokerage, perhaps? A Middle Eastern purchase of some of a big bank’s equity—Washington Mutual, maybe?—wouldn’t hurt. That’s what saved Citigroup in 1990. Perhaps Warren Buffett can come in and buy a Bear Stearns; hey, he saved Salomon in a different decade. What we need is some deep, untorn pockets to step up and buy some of the good paper that is being thrown away with the bad, so the trading desks can catch their breath and stabilize themselves. Giant losses would still happen, but perhaps not institution-threatening ones.

In other times, you might expect a president or a Treasury secretary to get involved, perhaps to pressure Fannie Mae, the organization set up in the thirties to issue emergency loans to alleviate just the kind of homeowning credit squeeze that we have right now, to lend a hand. But this administration seems to be either totally clueless or totally heartless, or both, and doesn’t want to goad Fannie Mae into helping. Maybe they hate that quasi-governmental institution set up by bleeding-heart Democrats to help struggling home buyers of a different, more liberal and compassionate, era. Or maybe they just think that anything short of an FDR-era Agricultural Adjustment Act for homes, where we bulldoze whole housing projects instead of cornfields to get price stability, just won’t work.

I fear that the pain and contractions in the housing and credit markets could cause as many as 7 million homeowners who bought houses in the past few years to flee or be tossed from their dwellings, even if the rest of the stock market thrives. It’s why I went off the reservation and screamed about this problem on television the other day (my latest unhinged rant). I see what could go wrong. I see how the forgotten man gets forgotten, and I feel helpless because I don’t see anyone doing a whole hell of a lot about it.

Thousands of miles from where the walls began tumbling down, New York, the town where the architects of card houses live, will soon feel the full force of the storm. So much of our economy depends on these financial builders and their minions who buy and sell the products that the pain may actually end up being felt worse here than in the epicenters of the problem. You just don’t know it or feel it yet. It’s all happened too fast, in just a few weeks of another sweltering summer, with the worst, much worse, yet to come. Which is why I bet that in the time it took for you to read this article, the Tom Joad effect just took another few bucks out of your pocket. Get ready, many more dollars will soon vanish before you discover you’ve been robbed.

James J. Cramer is co-founder of TheStreet.com. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. E-mail: jjcletters@thestreet.com.