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Jim Cramer: The Past Still Haunts the Banking Sector

Stocks in this article: AIGCBACJPM

NEW YORK (Real Money) -- After you read Stress Test by former Treasury Secretary Tim Geithner, you may never want to buy a bank stock again. That may be my chief takeaway from this newly indispensable book about the financial crises that plunged this country into the Great Recession. I certainly intend to ask Tim, when I sit down with him at the Barnes & Noble in Union Square after Mad Money tonight, why anyone would even contemplate investing in one of the behemoth banks that were so integral to the near-collapse of the U.S. -- not just the banking system, but the whole country.

If you are as enthralled with the turmoil of that period as I am, seeking every nuance of what went wrong, who went wrong and what was done to stem the collapse and what could have been done better, then the aptly-named Stress Test will become your quick-turning bedside reader.

They are all here: Bear Stearns, Lehman Brothers, AIG (AIG), Washington Mutual, Citigroup (C), Countrywide, Bank of America (BAC), Merrill Lynch, Wachovia, Fannie Mae (FNMA), Freddie Mac (FMCC). They're depicted not so much in living color but in stark reality -- as the true ne'erdowells of the era.


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The behind-the-scenes denouement or near-death of each is detailed with an exactitude that makes me feel Geithner is a total honest broker, even as I am sure he would be the first to admit that he lacks a dramatic hero-villain flare -- not that there weren't any.

In fact, we've got bums galore. They almost seemed drawn to the industry. It's impossible to imagine a group of trucking-company executives, or retailing CEOs or health care professionals, systematically performing as horrendously and as heinously as these bank bosses have done. They are, at times, laughably villainous, as in one anecdote about John Thain. According to the book, in an incredibly tense meeting regarding the Troubled Asset Relief Program (TARP), Thain -- who was at that point running Merrill Lynch, and is one of the richest men in the world -- inquired about assurances on his executive compensation during a discussion of the government's program to save the financial system. Good grief!

>>Read more: 'Too Big to Fail' Banks Aren't Too Big to Jail

I know Tim didn't write the book as an investors' guide to banks. But, as with any good book, you can extrapolate what you wish from the rich composite of regulators and the regulated that populate the text. For me, this has got to be one of the most cautionary tales about a subset of an asset class. Lightly buried within Stress Test are the reasons, both before and after the crisis, that bank stocks are valued as lowly as they are these days.

First, going into the Great Recession, bank financials and non-bank financials were meaningless, as we now know. Everything you saw on paper was pretty much a lie. You simply could not look at anything publicly issued by these banks and make a judgment of what they owned, what exposure they had, what they even really were.

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