A better understanding of how memory works is emerging from a newfound ability to link a learning experience in a mouse to consequent changes in the inner workings of its neurons. Researchers, supported in part by the National Institutes of Health’s National Institute of Mental Health (NIMH), have developed a way to pinpoint the specific cellular components that sustain a specific memory in genetically-engineered mice.

“Remarkably, this research demonstrates a way to untangle precisely which cells and connections are activated by a particular memory,” said NIMH Director Thomas Insel, M.D. “We are actually learning the molecular basis of learning and memory.”

For a memory to last long-term, the neural connections holding it need to be strengthened by incorporating new proteins triggered by the learning. Yet, it’s been a mystery how these new proteins — born deep inside a neuron — end up becoming part of the specific connections in far-off neuronal extensions that encode that memory.

By tracing the destinations of such migrating proteins, the researchers located the neural connections, called synapses, holding a specific fear memory. In the process, they discovered these synapses are distinguished by telltale molecular tags that enable them to capture the memory-sustaining proteins.

Mark Mayford, Ph.D., and Naoki Matsuo, Ph.D., of the Scripps Research Institute, report on their findings in the February 22, 2008 issue of the journal Science.

The Scripps researchers have been applying their new technique in a series of studies that focus on progressively finer details of the molecular machinery of memory.

“Inside neurons involved in a specific memory, we’re tracing molecules activated by that learning to see how it ultimately changes neural connections,” explained Mayford.

In a study published in the August 31, 2007 Science, Mayford and colleagues showed the same neurons activated by a learning experience are also activated when that memory is retrieved. The more neurons involved in the learning, the stronger the memory.

The researchers determined this by genetically engineering a strain of mice with traceable neurons in the brain’s fear center, called the amygdala. Inserted genes caused activated neurons to glow red when the animals learned to fear situations where they received shocks, in a process known as fear conditioning — and to glow green when the memory was later retrieved. The researchers then chemically prevented further expression of those neurons, so that resulting neural and behavioral changes could be confidently attributed to that learning experience at a later time. The study revealed which circuits and neurons were involved in the specific learning experience.

In the new study, Mayford and Matsuo adapted this approach to discover how fear learning works at a deeper level — inside neurons of the brain’s memory hub, called the hippocampus.

Evidence suggested that proteins called AMPA receptors (http://www.nimh.nih.gov/science-news/2007/faster-acting-antidepressants-closer-to-becoming-a-reality.shtml) strengthen memories by becoming part of the synapses encoding them. To identify these synapses, the researchers genetically engineered a strain of mice to express AMPA receptors traceable by a green glow. After fear conditioning had triggered new AMPA receptors deep in the neuron’s nucleus, they chemically suppressed any further expression of the proteins. This allowed time for the receptors to migrate to their appointed synapses. Hours later, green fluorescence revealed the fate of the specific AMPA receptors born in response to the learning.

As expected, the newly synthesized AMPA receptors had traveled and become part of only certain hippocampus synapses — presumably the ones holding the memory. Synaptic connections are made onto small nubs on the neuron called spines. These spines come in three different shapes called thin, stubby and mushroom. While little was known about the function of these differently shaped spines, the fact that they are altered in various forms of mental retardation, like Fragile-X syndrome, suggests a critical importance in mental function.

The researchers discovered the synapses that received the AMPA receptors with memory were limited to the mushroom type. The mushroom spines also figured prominently in the same neurons when the fear conditioning was reversed by repeatedly exposing the animals to the feared situation without getting shocked — a procedure called extinction learning. This indicated that the same neurons activated when a fear is learned are also activated when it is lost. The surge in mushroom spine capture of the receptors appeared within hours of learning and was gone after a few days, but appeared to be critical for cementing the memory.

CDC has done a preliminary analysis of the data from the testing and has identified findings with significant implications for public health.

After Hurricane Katrina, the Federal Emergency Management Agency (FEMA) provided mobile homes and travel trailers to Gulf Coast residents who had lost their homes. Concerns have surfaced about air quality in the mobile homes and trailers. CDC is working with FEMA to investigate these health concerns.

From December 21, 2007, to January 23, 2008, CDC conducted testing to assess levels of formaldehyde in occupied FEMA-supplied travel trailers and mobile homes in Louisiana and Mississippi. CDC randomly selected 519 trailers and mobile homes for testing. These 519 trailers and mobile homes represent a cross-section of the trailer types and manufacturers most frequently used by FEMA in the Gulf Coast. These results represent only those trailers and mobile homes.

CDC has done a preliminary analysis of the data from the testing and has identified findings with significant implications for public health. It is important to note that, as preliminary findings, these are subject to change as analysis is completed.

Key Findings

• In many trailers, mobile homes, and park models tested, formaldehyde levels were elevated relative to typical levels of US indoor exposure.

• Average levels of formaldehyde in all units was about 77 parts per billion (ppb). This level is higher than US background levels. Levels measured ranged from 3 ppb to 590 ppb.

• These measured levels are likely to under-represent long-term exposures since formaldehyde levels tend to be higher in newer travel trailers and mobile homes and during warmer weather.

• Indoor temperature was a significant factor for formaldehyde levels in this study independent of trailer make or model.

• Formaldehyde levels varied by model (mobile homes, park homes, and travel trailers), but all types of trailers tested had some high levels.

• At the levels seen in many trailers, health could be affected.

Recommendations

• Families who live in FEMA-supplied travel trailers and mobile homes should spend as much time outdoors in fresh air as possible.

• Open windows as much as possible to let in fresh air.

• Try to maintain the temperature inside travel trailers and mobile homes at the lowest comfortable level.

• Do not smoke, and especially do not smoke indoors.

• If you have health concerns, see a doctor or another medical professional.

• Families that include children, the elderly, and those with chronic diseases such as asthma should make a special effort to get as much fresh air as possible, and these families should make relocating to permanent housing a priority.

By Mike Whitney

“I just saw a picture Bernanke stripped to the waist in the boiler-room shoveling greenbacks into the furnace.” Rob Dawg, Calculated Risk blog-site (ICH) — On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to “determine the total insured amount for each depositor….as of the day of the failure” and return their money as quickly as possible. The agency is “modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions.” The implication is clear, the FDIC has begun the “death watch” on the many banks which are currently drowning in their own red ink. The problem for the FDIC is that it has never supervised a bank failure which exceeded 175,000 accounts. So the impending financial tsunami is likely to be a crash-course in crisis management. Today some of the larger banks have more than 50 million depositors, which will make the FDIC’s job nearly impossible. Good luck. It’s worth noting that, due to a rule change by Congress in 1991, the FDIC is now required to use “the least costly transaction when dealing with a troubled bank. The FDIC won’t reimburse uninsured depositors if it means increasing the loss to the deposit insurance fund….As a result, uninsured depositors are protected only if a bank acquiring the failed bank will pay more for all of the deposits than it would for insured deposits only.” (MarketWatch) Great. That’s reassuring. And there’s more, too. FDIC Chairman Shiela Bair warned that “as of Sept. 30, there were 65 institutions with assets of $18.5 billion on its list of “problem” institutions;” although she wouldn’t give names. So, what does it all mean? It means there’s going to be an unprecedented wave of bank closures in the US and that people who want to hold on to their life savings are going have to be extra vigilant as the situation continues to deteriorate. And it is deteriorating very quickly. Right now, many of the country’s largest investment banks are holding $500 billion in mortgage-backed securities and other structured investments that are steadily depreciating in value. As these assets wear-away the banks’ capital, the likelihood of default becomes greater. This week, Fitch Ratings announced that it will (probably) cut ratings on the 5 main bond insurers (Ambac, MBIA, FGIC, CIFG,SCA) “regardless of their capital levels”. This seemingly innocuous statement has roiled markets and put Wall Street in a panic. If the bond insurers lose their AAA rating (on an estimated $2.4 trillion of bonds) then the banks could lose another $70 billion in downgraded assets. That would increase their losses from the credit crunch–which began in August 2007—to $200 billion with no end in sight. It would also impair their ability to issue loans to even credit worthy customers which will further dampen growth in the larger economy. Structured investments have been the banks’ “cash cow” for nearly a decade, but, suddenly, the trend has shifted into reverse. Revenue streams have dried up and capital is being destroyed at an accelerating pace. The $2 trillion market for collateralized debt obligations (CDOs) is virtually frozen leaving horrendous debts that will have to be written-down leaving the banks’ either deeply scarred or insolvent. It’s a mess. There were some interesting developments in a case involving Merrill Lynch last week which sheds a bit of light on the true “market value” of these complex debt-pools called CDOs. The Massachusetts Secretary of State has charged Merrill with “fraud and misrepresentation” for selling them a CDO that was “highly risky and esoteric” and “unsuitable for the City of Springfield.” (Most cities are required by law to only purchase Triple A rated bonds) The city of Springfield bought the CDO less than a year ago for $13.9 million. It is presently valued at $1.2 million—MORE THAN A 90% LOSS IN LESS THAN A YEAR. Merrill has quietly settled out of court for the full amount and seems genuinely confused by the Massachusetts Secretary of State’s apparent anger. A Merrill spokesman said blandly, “We are puzzled by this suit. We have been cooperating with the Secretary of State Galvin’s office throughout this inquiry.” Is it really that hard to understand why people don’t like getting ripped of? This anecdote shows that these exotic mortgage-backed securities are real stinkers. They’re worthless. The market for structured debt-instruments has evaporated overnight leaving a massive hole in the banks’ balance sheets. The likely outcome will be a rash of defaults followed by greater consolidation of the major players. (re: banking monopolies) The Fed’s multi-billion bailout plan; the “Temporary Auction Facility” (TAF) is a quick-fix, but not a permanent solution. The real problem is insolvency, not liquidity. The smaller banks are dire straights, too. They’re bogged down with commercial and residential loans that are defaulting faster than any time since the Great Depression. The Comptroller of the Currency,John Dugan–who is presently investigating commercial real estate loans—discovered that commercial banks “wrote off $524 million in construction and development loans in the third quarter of 2007, almost nine times the amount of 2006”. The commercial real estate market is following residential real estate off a cliff and will undoubtedly be the next shoe to drop. Dugan found out that, “More than 60% of Florida banks have commercial real estate loans worth more than 300% of their capital, a level that automatically attracts more attention from examiners.” (Wall Street Journal) He said that his office was prepared to intervene if banks with large real estate exposure maintained unreasonably low reserves for bad loans. Dugan is forecasting a steep “increase in bank failures.” According to Reuters: “Dozens of U.S. banks will fail in the next two years as losses from soured loans mount and regulators crack down on lenders that take too much risk, especially in real estate and construction,” predicts Gerard Cassidy, RBC Capital Markets analyst. Apart from the growing losses in commercial and residential real estate, the banks are carrying over $150 billion of “unsyndidated” debt connected to leveraged buyout deals (LBOs) which are presently stuck in the mud. Like CDOs, there’s no market for these sketchy transactions which require billions in cheap, easily available credit. They’ve just become another anvil dragging the banks under. On January 31, Bloomberg News reported: “Losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings.” Standard and Poor’s added that “it may cut or reduce ratings of $534 billion of subprime-mortgage securities and CDOs as default rates rise.” Another blow to the banks withering balance sheets. Is it any wonder why the “new loans” spigot has been turned off? Surprisingly, there’s an even bigger threat to the financial system than these staggering losses at the banks. A default by one of the big bond insurers could trigger a meltdown in the credit-default swaps market, which could lead to the implosion of trillions of dollars in derivatives bets. The inability of the under-capitalized monolines (bond insurers) to “make good” on their coverage is likely to set the first domino in motion by increasing the number of downgrades on bond issues and intensifying the credit-paralysis which already is spreading throughout the system. MSN Money’s financial analyst Jim Jubak summed it up like this: “Actually, I’m worried not so much about the junk-bond market itself as the huge market for a derivative called a credit-default swap, or CDS, built on top of that junk-bond market. Credit-default swaps are a kind of insurance against default, arranged between two parties. One party, the seller, agrees to pay the face value of the policy in case of a default by a specific company. The buyer pays a premium, a fee, to the seller for that protection. This has grown to be a huge market: The total value of all CDS contracts is something like $450 trillion….. Some studies have put the real credit risk at just 6% of the total, or about $27 trillion. That puts the CDS market at somewhere between two and six times the size of the U.S. economy. All it will take in the CDS market is enough buyers and sellers deciding they can’t rely on this insurance anymore for junk-bond prices to tumble and for companies to find it very expensive or impossible to raise money in this market.” (Jim Jubak’s Journal; “The Next Banking Crisis is on the Way”, MSN Money) Jubak really nails it here. In fact, this is what Wall Street is really worried about. $450 trillion in cyber-credit has been created through various off balance sheets operations which neither the Fed nor any other regulatory body can control. No one even knows how these abstruse, credit-inventions will perform in a falling market. But, so far, it doesn’t look good. The enormity of the derivatives market ($450 trillion) is the direct result of Greenspan’s easy-credit monetary policies as well as the reconfiguring of the markets according to the “structured finance” model. The new model allows banks to run off-balance sheets operations that, in effect, create money out of thin air. Similarly, “synthetic” securitization, in the form of credit default swaps (CDS) has turned out to be another scam to avoid maintaining sufficient capital to cover a sudden rash of defaults. The bottom line is that the banks and non-bank institutions wanted to maximize their profits by keeping all their capital in play rather than maintaining the reserves they’d need in the event of a market downturn. In a deregulated market, the Federal Reserve cannot control the creation of credit by non-bank institutions. As the massive derivatives bubble unwinds, it is likely to have real and disastrous effects on the underlying-productive economy. That’s why Jubak and many other market analysts are so concerned. The persistent rise in home foreclosures, means that the derivatives which were levered on the original assets (sometimes exceeding 25-times their value) will vanish down a black hole. As trillions of dollars in virtual-capital are extinguished by a click of the mouse; the prospects of a downward deflationary spiral become more likely. As economist Nouriel Roubini said: “One has to realize that there is now a rising probability of a ‘catastrophic’ financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. That is why the Fed has thrown caution to the wind and taken a very aggressive approach to risk management.” (Nouriel Roubini EconoMonitor) “In the fourth quarter of 2007, new foreclosures averaged 2,939 a day, double the pace of a year earlier.” (RealtyTrac Inc.) The banks are presently cutting back on home equity loans which provided an additional $600 billion to homeowners last year for personal consumption. Bush’s $150 billion “stimulus package” will barely cover a quarter of the amount that is lost. As consumer spending slows and the banks become more constrained in their lending; businesses will face overproduction problems and will have to limit their expansion and lay off workers. This is the downside of “low interest” bubble-making; a painful descent into deflation. Capital is now being destroyed at a faster pace than it is being created. That’s why the Fed is looking for solutions beyond mere rate cuts. Bernanke wants direct government action that will provide immediate stimulus. But that takes political consensus and there’s still debate about the gravity of the upcoming recession. The pace of the economic contraction is breathtaking. This week’s release of the Institute for Supply Management’s Non-Manufacturing Index (ISM) was a shocker. It showed steep declines in all areas of the nation’s service sector—including banks, travel companies, contractors, retail stores etc—The Business Activity Index, the New Orders Index, the Employment Index, and the Supplier Delivery Index have all contracted at a “historic” pace. Everyone took a hit. “The numbers are so terrible, it’s beyond belief,” said Scott Anderson, senior economist at Wells Fargo & Co. The $2 trillion that has been wiped out from falling home prices, the slowdown in lending activity at the banks, the loss $600 billion in home equity loans, and the faltering stock market have all contributed to a noticeable change in the public’s attitudes towards spending. Traffic to the shopping malls has slowed to a crawl. Retail shops had their worst January on record. Homeowners are hoarding their earnings to cover basic expenses and to make up for their lack of personal savings. The spending-spigot has been turned off. America’s consumer culture is in full-retreat. The slowdown is here. It is now. We are likely to see the sharpest decline in consumer spending in US history. Bush’s $150 billion will be too little too late. America’s place in the world has been guaranteed not by what it produces but by what it consumes. The American consumer has been the locomotive that drives the global economy. Now that engine has been derailed by the reckless monetary policies of the Fed and by shortsighted financial innovation. When equity bubbles collapse; everybody pays. Demand for goods and services diminishes, unemployment soars, banks fold, and the economy stalls. That’s when governments have to step in and provide programs and resources that keep people working and sustain business activity. Otherwise there will be anarchy. Middle class people are ill-suited for life under a freeway overpass. They need a helping hand from government. Big government. Good-bye, Reagan. Hello, F.D.R. The Bush stimulus plan is a drop in the bucket. It’ll take much, much more. And, we’re not holding our breath for a New Deal from George Walker Bush

By Aya Takada

Feb. 6 (Bloomberg) — Wheat surged to a record in Chicago, leading
other grains and oilseeds higher, on shrinking U.S. and Canadian
supplies of high-protein varieties used for bread and pasta.

Canada, the largest wheat exporter after the U.S., said yesterday
its inventories of the grain plunged by almost a third after adverse
weather hurt crops. U.S. spring-wheat inventories will total 88
million bushels on May 31, down 25 percent from a year earlier,
according to government forecasts.

The jump in grain prices may increase costs for food producers,
including Kellogg Co. and General Mills Inc., the largest U.S.
cereal makers. It also risks stoking inflation and making it more
difficult for central bankers around the world to stave off
recession by cutting interest rates.

“Wheat prices just continue to explode higher,” Simon Roberts,
head of agricultural commodities at Australia and New Zealand
Banking Group Ltd., said today in an interview with Bloomberg
Television.

Chicago Board of Trade wheat futures rose by the exchange- imposed
daily limit of 30 cents for a third day. The March- delivery
contract was 3 percent higher at $10.33 a bushel in after-hours
electronic trading as of 11:59 a.m. local time in London, beating
the previous record of $10.095 set Dec. 17.

“Reduced supplies in Canada prompted wheat buyers to seek
alternative supplies in the U.S., leading to a drawdown in U.S.
inventories,” Kenji Kobayashi, an analyst at Kanetsu Asset
Management Co. in Tokyo, said by phone.

Milling wheat for March delivery rose 11.25 euros, or 4.3 percent,
to 271.75 euros ($397) a metric ton as of 1:01 p.m. local time in
Paris. The contract has gained 9.7 percent this year.

Wheat Futures

In the past year, Chicago wheat futures more than doubled and in
Minneapolis, where spring wheat trades, prices almost tripled. On
the Minneapolis Grain Exchange, wheat for May delivery rose the
daily limit of 30 cents, or 2.3 percent, to $13.6475 a bushel. The
contract has gained the exchange-imposed maximum in seven of the
past nine sessions.

Wheat has gained 17 percent this year, outperforming crude oil and
copper, as prices of industrial commodities were capped by concern
that slowing economies may curve demand.

U.S. demand isn’t affected by a slowdown in the economy as the grain
is a staple food, said Nobuyuki Chino, president of Tokyo-based
grain trading company Unipac Grain Ltd.

“People without much money to spend tend to eat grains more, as
meat and other more expensive products are not affordable,” Chino
said by phone today.

Overseas demand for U.S. wheat is also rising because of reduced
supplies in rival exporters such as Australia, Chino said.

Asian Buyers

“High prices just do not deter demand at the moment,” said ANZ’s
Roberts. “We’re seeing Asian buyers lining up.”

The surge in wheat prices so far hasn’t led to “a huge increase in
plantings” in North America and weather in the northern hemisphere
summer could still hurt crops, Roberts said.

“Really there is no limit to how high prices can go if we get any
weather problems,” he said.

Kellogg has hedged 70 percent of its commodity costs, the Battle
Creek, Michigan-based company said in a statement yesterday. The
company posted a 3.3 percent profit decline in the fourth quarter
and forecast 2008 earnings that trailed analysts’ estimates because
of higher wheat costs and advertising spending.

Wheat futures were also bought today on speculation U.S. farmers who
normally sow spring varieties may switch to soybeans this year,
Kobayashi at Kanetsu Asset Management said. Soybeans require less
fertilizer than wheat and may be more profitable when harvested in
September and October.

Soybeans Advance

Soybeans for March delivery added as much as 17 cents, or 1.3
percent, to $13.40 a bushel in after-hours electronic trade on the
Chicago Board of Trade, and traded at $13.38 as of 12:19 p.m. in
London. The price of the oilseed reached a record $13.415 a bushel
on Jan. 14.

Corn for March delivery gained as much as 6.75 cents, or 1.3
percent, to $5.16 a bushel, and traded at $5.1325 as of 12:19 p.m.
in London.

“Soybean and corn futures chased the rally in wheat,” Kobayashi
said. Gains were limited as declining energy costs may reduce demand
for biofuels made from the crops, he added.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=akFMkZItmMD0

Hard Ball with chris matthews

We‘ve got expert here, Jim Cramer, who‘s host of CNBC‘s “MAD MONEY” weeknights at 6:00 and 11:00 Eastern time. His new book is called “Jim Cramer‘s Stay Mad for Life.” Cramer, you‘re a genius. I ask you to be a genius. I‘m setting you up. I want to know, is anyone out there, of all the candidates, Rs or Ds, saying something that actually would help the economy either take a softer landing or get through this with a little more positive nature?

JIM CRAMER, HOST, “MAD MONEY”: No. There are some who understand that interest rates are too high, but they‘re not forceful about it because Ben Bernanke gets a level of respect that, frankly, I find despairing. I mean, I cannot believe that this man, who has done—and look, I‘m respectful of the Fed chairman, always have been, Volcker, Greenspan. But Ben Bernanke is not doing a good job. No one ever criticizes him. The Hill testimony this week was horrible. I know that‘s not candidates (ph). But I‘ve got to tell you, the stimulus package…

MATTHEWS: Well, why don‘t you explain that because…

CRAMER: … that doesn‘t do anything.

MATTHEWS: I know. We all studied in school that monetary policy, increasing the supply of money (INAUDIBLE) lower interest rates, gives the economy more juice. It‘s going to be more helpful in the very short run. Whereas all these fiscal tools, these tax rate changes, these spending level changes, take forever to have an impact, and they rarely, to me, have never made much difference except in the very long run.

CRAMER: Amen! Amen! What—you know, thank you for just saying it like that! We all know that! Everybody who has run half a billion dollars in his life knows that! It is embarrassing! I mean, the president, all these people, pandering about giving money, so what, so we can go buy a suit at Men‘s Warehouse so we can help the quarter at Nike? I mean, this is ridiculous, $150 million, I mean, maybe it‘ll say, I‘ll go buy a dress for somebody. I mean, it‘s crazy!

MATTHEWS: Well, why do they—well, just so everybody understands

why you‘re so excited and why I obviously agree with you, is that they

believe somehow that if everybody buys a new pair of sneakers for the kids

where the kid does need a new pair of sneakers, I‘m all for that. But does anybody believe that‘s going to cause an economic bonanza that‘s going to reverse the business cycle?

CRAMER: No! No. But there is an element—there is something that I would urge all the candidates to think about, and our treasury secretary…

MATTHEWS: Right.

CRAMER: … which is that there are a group of insurance companies that insure all these bad mortgages.

And, Chris, they‘re—I think they‘re all about to go belly up.

MATTHEWS: Yes.

CRAMER: And that will cause the Dow Jones to decline 2,000 points. They have got to be shut down and the insurance given to new resolution trust. This is going to happen in maybe two, three weeks, Chris.

It‘s going to be on the front of every paper. And no one in Washington is even willing to admit it.

MATTHEWS: So, what are—who are you including in these mortgage companies that are going to go belly up? Give me a description.

CRAMER: This is MBIA and Ambac on big—these are the ones.

Remember, Merrill wrote down a lot of stuff the other day, and Citigroup?

MATTHEWS: Yes.

CRAMER: All these companies are relying on insurance to save them.

The insurers don‘t have enough money.

There‘s also personal mortgage insurance. PMI is a company there that does it, MGIC. Chris, I am telling you these companies do not have the capital to make good. And, when they do fall—I believe it is when—if the government doesn‘t have a plan in action, you will not be able to open the stock market when they collapse.

MATTHEWS: You‘re talking about a 2,000-point drop in the Dow…

CRAMER: Absolutely.

MATTHEWS: … if the government acts.

CRAMER: No, if the government doesn‘t see this problem. No one is even talking about it.

No…

MATTHEWS: OK.

CRAMER: I mean, other than the New York State‘s superintendent of insurance, because he‘s worried about…

MATTHEWS: OK.

CRAMER: … muni bondholders, I have not heard a single politician mention the fact that these major insurers, who have insured $450 billion of mortgages, are all about to go under.

MATTHEWS: OK.

Let‘s talk politics. Don Straszheim, who used to be chief economist -

you probably know him—at Merrill for all those years…

CRAMER: Smart guy. Smart guy, knew about China.

MATTHEWS: … he used to have a thing called the pocketbook index—

I used to follow it all the time—which was absolute predict for presidential elections. And it took away the jobs of pundits and pollsters.

All you needed to know was whether real per capital personal income went up or down the year before the election to predict the election.

CRAMER: Right. Absolutely.

MATTHEWS: So, here we are, in the middle of an election year. Do you believe that the personal income per capita is going to go down this year? Do you believe we‘re going to see a decline in economic well-being of most people? Therefore; does that mean the Democrats will win, no matter if they run Hillary, Barack, Edwards, or anybody?

CRAMER: I disagree with the qualifier of most people.

I‘m trying to find, other than maybe a couple hedge fund managers, anyone who is going to have an up year and be worth more this time next year. I don‘t know a soul, whether it be because of the housing market, the incredible decline already in the stock market, the job stagnation, the incredible layoffs I foresee.

I mean, look, how about a—how about just a run-the-table grand sweep for the Democrats? It is that bad out there.

MATTHEWS: And it does meet the standard of an economy that turns the politics of the country upside down?

CRAMER: Oh, totally.

I mean, I don‘t think anyone—you know, Hank Paulson is a smart guy.

But I—I think something must have happened when you get to become

treasury secretary with President Bush, where I guess, you know, it‘s like

it‘s like Jack Nicholson in “One Flew Over the Cuckoo‘s Nest.”

MATTHEWS: Yes.

CRAMER: I mean, I can‘t believe this stuff is happening.

How come they cannot address this mortgage issue, which is just going to—and I‘m not talking about the forgiveness plan. I‘m talking about the insurers. And they understand it. I don‘t think the president is sophisticated enough, but the treasury secretary certainly is.

The Fed chairman may not be sophisticated enough.

MATTHEWS: What…

CRAMER: And he‘s running the Fed as a Princeton debating society. I didn‘t to go Princeton. I do like that whole kind of black and orange color scheme they have got.

MATTHEWS: I like these ads that come on and say, if you have got a balloon mortgage that‘s—you now have to pay up on, because it was low rates—now the rates are spiking—just switch over to this other company.

(LAUGHTER)

MATTHEWS: Please don‘t name the name of it. Because then everything is going to be all right. You are going to have a low-interest, fixed mortgage.

I mean, where do these—is there such a thing, or does it just stretch out your loan?

CRAMER: No. No. Seven million people bought the teaser rates that Alan Greenspan and Bernanke told us would be really good financial engineering, seven million people.

MATTHEWS: Yes.

CRAMER: These are all resetting at a rapid—between 2005 and 2007 -

rapid resetting. These are people who walking away from their homes or hunkering down. And they‘re—these are dog-food eaters and squatters, my friend.

And you know, look…

MATTHEWS: OK.

CRAMER: … I have been a bull for—how many years have you known me as a bull?

MATTHEWS: Are you a bear?

CRAMER: Yes.

MATTHEWS: OK.

CRAMER: And we‘re in bear market.

(CROSSTALK)

MATTHEWS: When is the recession begin and when does two quarters, successive quarters of economic downturn commence, sir?

CRAMER: It started in December.

MATTHEWS: I speak as a former grad student in economics. What…

CRAMER: It started in December. That‘s when the recession started.

MATTHEWS: So, we‘re heading towards a bad six months?

CRAMER: I have never—this is the worst Christmas—this is really

it‘s a bad time. And I try to give hope to people.

MATTHEWS: Is there a floor on the market? Please tell me this, for my own good. Is there a floor on the Dow?

CRAMER: Yes.

MATTHEWS: At some point, is there a ratchet effect on this elevator, where it stops falling below certain floors?

CRAMER: Yes, because interest rates are so low.

And that‘s another thing. How come they don‘t—the president and Federal Reserve chairman don‘t—interest rates are so low because it‘s seemingly a very serious recession. So, there‘s a lot of Dow stocks that yield more than treasuries do. The 10-year treasury yields 3.6.

MATTHEWS: OK.

CRAMER: So, you can buy—any of the stocks in the Dow that yield more than 4 percent are going to give you lot of safety. And that‘s a lot of them. So, you could have a floor because of that.

MATTHEWS: You know what my strategy is? Capital preservation.

Thank you very much, Jim Cramer of CNBC.

CRAMER: You‘re smart. You‘re smart.

MATTHEWS: Thank you.