Cramer: Alternatives to Bank Bailout Are Worse


OK then, here are some alternatives to the plan.

1. Let everything go bust, continue to have housing come down, bet that there won't be a series of runs on banks and that the FDIC can dispose of bad loans on a case-by-case basis. I don't think that's worked to date. It will only get worse.

2. Get a modified plan that allows banks that have written down the mortgages to sell them. I don't buy the idea that the other banks will be in a weakened position to handle the new "markdowns," because many of the banks have already marked down prices and the examiners have let them slide. Any modified plan of even a small amount would help. But to just let the mortgages sit there is a very bad move.

3. Bet that we get a big rally and banks can offer equity and get whole again. This is good for Citigroup (STOCK QUOTE: C) and for maybe Wachovia (STOCK QUOTE: WB). I doubt either will do it; they will regard it as too expensive. I don't know who else will do it, but the Zions Bancorp (STOCK QUOTE: ZION) model was a winner. That's what the short-selling ban was partially about. We all hate the short-selling ban, so let's be clear on that.

4. Go the other way, and nationalize the bad banks. This is the Fannie Mae (STOCK QUOTE: FNM) and AIG (STOCK QUOTE: AIG) way. I don't think we want to go this way, taking over all of these institutions. I like the idea of equity being taken in the bad ones, but I don't know if that will sell.

5. Give stretched homeowners a chance by offering them loans directly. This is supposed to have happened with the refinanced FHA, but it is either not working or is taking too long.

6. Bet on mergers and consolidations. That's OK if it is Merrill (STOCK QUOTE: MER) and Bank of America (STOCK QUOTE: BAC), but if no one else steps up, then we have nothing.

I want to emphasize that the urgency here extends to all of the other aspects of finance. There is a growing belief among the press that any leverage is bad. This is preposterous, because without credit, the economy fails. We can't have an economy based only on service and General Mills (STOCK QUOTE: GIS).

Every company with a financing arm is being starved here. Nobody will lend to anyone. Without a way to get people at banks to feel the world is not coming to an end, we are going to be faced with this kind of freeze-up.

If someone has a better theory about how to correct the core of the freeze-up -- the mortgages, even if, obviously they are worth more than the houses -- I am all ears.

Remember, the people who are in their homes now with the questionable vintages, 2005 to the first quarter of 2007, are sure trying hard to stay in. There are no flippers left to speak of. Why can't people see that?



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