TheStreet.com TV Recap: Break a Bank to See Its Worth

No one knows what's in the collaterialized debt obligations that are sparking so much turmoil on the Street.

How to sooth investor fears? Have a bank fold so we can finally see what are really in these often esoteric instruments.

"We don't know about anything about what's in them," Jim Cramer said on TheStreet.com TV's Wall Street Confidential Web video Thursday.

The market needs a bank, a savings and loan company or a homebuilder to go under to figure out what these pieces of paper are worth, he said. Morgan Stanley, Citigroup, Goldman Sachs and Bear Stearns, after talking about CDOs, have all reached the conclusion that no one really knows. "We need someone to fold ... because only then can we pull the pieces apart," Cramer said. "Someone must die, so others can live."

Cramer: One Bank's Gotta Go

There are wrinkles that make it almost impossible to value CDOs because "we don't really understand where the rating agencies are going to come out eventually, we don't understand the different levels of risk and we don't know what's in these pieces of paper," Cramer said.

What's happened is that while some people will value one CDO at $40, other people will value the same piece of paper at $90, he said. "As long as there's that disparity, there're no vulture funds that want to come in and buy."

"We've read headline after headline that there are vulture companies that want to come in and ... buy this stuff, but no one's bought any, which was the real odd takeaway of the Morgan Stanley call," Cramer said. The reason why this matters, he said, is because on the same page there will be a story about how E *Trade (ETFC Quote) either has to get bought or get a cash infusion.

However, according the Cramer, an idea that an Ameritrade (AMTD Quote) or a Schwab (SCHW Quote) could come in is not plausible because "they're not that good at identifying what's in a portfolio."

"Only a vulture company could really identify their portfolio," he said, but "we know from Morgan Stanley that a vulture fund is not going to come in."

"So what happens to an E*Trade," Cramer asks. "To me, it's just a wasting asset at this point, until we can figure out exactly what's in each piece of paper."

Three things need to happen, he said. One, market players need "a transparent view of all the different levels of mortgages and where they are." Two, the rating agencies need to come out and admit that they were dead wrong "because there are a lot of companies and CDOs that are [still] rated very high."

The third thing: a company must fold.