This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Cramer: A Real European Crisis Plan, Finally

Please enjoy this free sample of our premium content featuring Jim Cramer. To get all of Cramer's premium content free for a limited time, please register here.

NEW YORK (RealMoney) -- Why are the European markets acting a bit better of late?

I think there are two reasons. The first is that the reign of financial bungling by Jean-Claude Trichet is at last over. That means the obsession with inflation is over. That means the new central banker has a chance to cut rates, repealing what Trichet wrought, and recognize that doing nothing -- Trichet's way -- will bring a collapse of the banking system and radical deflation, which is more pernicious than the inflation that Trichet so feared. In other words, the 1930s deflation was the real worry here, not 1920s hyperinflation, and Trichet just didn't get it. He was wrong. Let's move on.

Second though, is Dexia. This sudden collapse of a bank that passed two stress tests with flying colors -- a gigantic bank with $750 billion in assets -- can be considered a true wakeup call. The value of its equity was so diminished that any finance minister had to recognize that the future is now, and if you want to save all the other banks, you need to act now.

The solution that Europe is using, the good bank and the bad bank, is reminiscent of the Northern Rock solution, which worked -- meaning that the two entities, the good bank with earnings power, and the bad bank with bad loans, didn't take down the whole system and the government ended up getting some of its money back. Most important, the U.K. lived to play again.

Dexia has plenty of bad loans. But it also has bad sovereign debt. The Dexia solution takes into account both, and while it is plenty ugly, it is a solution. Remember, there are no good outcomes here. Just less bad ones.

The more bad one, the systemic risk, goes off the table with a Dexia plan. It should make you feel better about the U.S. fundamentals, even though it will almost certainly help push Europe into a recession.

I know people will ask how a good bank/bad bank regimen for so many banks can be paid for. I think the answer is that France and Germany will take care of their banks in similar fashion, and they do have the money to do so. Think a combination of TARP, Citigroup (C) and Dexia. The banks of the weaker countries will need a combination of EU and IMF help and will be brain-dead, maybe a la Fannie Mae (FNMA) and Freddie Mac, but they won't bring down the system.

My friend Michael Cembalest, who has been the biggest and most correct bear about Europe in his always amazing Eye on the Market piece from JPMorgan (JPM), actually gives this plan a ray of hope. A plan that eliminates systemic risk -- meaning one that eliminates Lehman, as Treasury Secretary Tim Geithner said would happen -- but gives us a bunch of Dexias allows us to think about a world without endless crisis, even if it means Greece defaults. Which it most certainly does.

So, now we have a roadmap, and a central banker who is not placing a roadblock in front of it. Perhaps it is the beginning of the end of the crisis. That doesn't mean Europe's a great place to be. It does mean the world isn't ending, which is pretty different from where we were before the Dexia blowup and under the outrageously terrible stewardship of Jean-Claude Trichet.

At the time of publication, Cramer had no positions in the stocks mentioned, though positions can change at any time.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs