This post appeared earlier today on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
Every day they play break the bank. They play it because Tim Geithner gave them ammo. But I think they have a lot of assumptions wrong.
What they are banking on is the "stress test," meaning that if they can break the stocks, they can break the banks, and that means that the banks that go down will not pass the stress test.
If you don't pass the stress test, I think you get shut down, and your assets will be given to the "good" banks. Here's the issue that the shorts don't realize: While many of the banks that are going down should go down, because they will not meet the stress test, there are others that will meet it simply because the government is not about to seize them.
We are not going to nationalize
Bank of America
. We are not going to nationalize
. We are not going to seize them. We are going to let them build capital and work them out themselves. We are going to do that because it is nuts to seize them, and Tim Geithner knows that. He knows that the government doesn't have a clue about how to run
, for example, with all of those myriad special-purpose vehicles that are like giant collateralized debt obligations.
There's lots of talk about how Sweden nationalized its banks and it worked, and how that means we could do the same thing. That's just silly. Citigroup's structured investment vehicles are bigger than the entire market of Sweden. The degree of difficulty of our problems vs. the simple commercial and residential mortgages of Sweden make the analogy just plain stupid.
I believe in selling a lot of the smaller regionals. I don't know what happens to
. Maybe they will be turned into zombie banks. Maybe they get seized.
But hitting a home run by shorting Bank of America or Citigroup from here may be difficult to get.
In the meantime,
does not need the government and can very quickly do an equity offering right here to pay back a lot of it. (Remember, you can't earn out of TARP; you have to raise equity to do so, a rule that the congresspeople grilling Lloyd Blankfein didn't seem to know.) That stock will go up despite
UltraShort Financials ProShares
bashing, which shows it would be even much higher, as it is a huge part of the index. By the way, I had people in the so-called Goldman emergency meeting, and it was regularly skedded. I wish it
, because the new stress-test plan allows Goldman to go buy pretty much everyone.
So, the misinterpretations of the stress test continue. You must understand that the government wants the Citis and the Bank of Americas to work out their situations themselves. They have no desire to seize or run these banks.
Wells Fargo? They want this one to work. They know it was a survivor before it stupidly bought Wachovia. They will help it by giving it the deposits of ne'er-do-well banks, not strip it of its strength. They need more banks than just Goldman,
So, the endless attempts to break common stocks seems, at this point, to be misplaced, because all you are really breaking with the UltraShort Financials is Wells Fargo, and maybe
. That's really about it.
Maybe time to pick another instrument?
At the time of publication, Cramer was long Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
Jim Cramer is co-founder and chairman 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
TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.