Learning From History

Here's a story that could easily past muster and make me sound like a genius: Everything's bad. The mortgage mess is bad and getting worse. The inflation situation is bad and getting worse. The Middle East and oil are bad and staying bad. The uncertainty in Washington is bad and getting worse. The brokers are bad and getting worse. Many of the major banks and all of the savings banks look like candidates for failures. We need more, bigger bailouts.

Employment is bad and getting worse. The budget deficit is totally out of control. Citigroup (C - commentary - Cramer's Take) is bankrupt.

Funny thing: that's something I wrote to myself when I was managing my hedge fund in 1990. The same thing! The very same thing.

It was word for word.

And what happened? The financials rallied 200%. Oil prices plummeted. Inflation went away. The market took off huge. A new president eliminated the budget deficit and created tons of new jobs. The remaining banks prospered beyond belief. Rates came down big. Citigroup got a sheik savior. The great bull market that was preempted by the crash of 1987 began anew.

The whole thing was so counterintuitive as to be ridiculous. The bottom was reached precisely the day that the leading short-sellers of the day, the Feschbach brothers, said betting against financials was like "shooting fish in a barrel." That's right: The banks bottomed that very day!

Could it be different this time? Of course. Could we slide into oblivion? You bet.If Lehman (LEH - commentary - Cramer's Take), AIG (AIG - commentary - Cramer's Take) and Washington Mutual (WM - commentary - Cramer's Take) were all to follow, domino-style, with no breathing room, then there would be no confidence in any financial. We would begin to shoot those companies that have raised adequate capital. If no one steps up to buy Lehman then we will presume everyone is out of money unless it is obvious that the government said "If you buy Lehman you have to take the $40 billion in bad mortgages they have," or whatever the number is.

Plus, the crisis is housing loans -- and there are millions of them -- not commercial loans like back in 1990, when there were just thousands of them. Sheila Bair, the FDIC head, is giving IndyMac borrowers better terms and stretch-outs and that's right, but it is time-consuming, manpower-consuming and also politically precarious for institutions like Fannie Mae (FNM - commentary - Cramer's Take) and Freddie (FRE - commentary - Cramer's Take) to give people great deals who don't deserve them and let others who didn't do anything wrong keep paying high mortgages. We still have not worked out a plan to allow people to stay in their homes -- or not -- and have some way for the lender to recoup the money without foreclosure.

But you have to understand -- and I am not sure all of the most authoritative bears out there are aware of the short debacle of 1991 -- that I have lived through this before, this somewhat miraculous turn of events right at the bottom, and it colors my thinking every day now.

I had made almost all of my money shorting the financials that year. I didn't want to leave the thesis; it was too lucrative. I interpreted everything negatively for a long time and always thought every rally was another great shorting opportunity. I was my own worst enemy.

And then it changed. Then we got a monster move. I remember fighting it. I remember digging in my heels. I remember being smarter than the average bear. I remember saying that the bulls were a bunch of bozos and lightweights and didn't know anything. I remember the scorn I had for them.

And I remember the 18-wheeler tracks across my back when things did turn and I had to scramble to get on board the truck.

That moment seared me. It made me more flexible and open-minded. It reminded me that the market was at 1,300 when I started and it got to 13,000 and then some.

I know that makes me sound like a babbling bullish clown on this site even as I have endlessly talked about the institutions on the brink, the seven black holes.

But at least you know now where I'm coming from.

I was spawned by 1990-1991, when Citigroup made it, not 2008, when people think it can't. I saw institutions, insolvent institutions, rise from the dead and get bought at a premium. I saw it because it happened.

And I will never forget it.

At the time of publication, Cramer had no positions in stocks mentioned.

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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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