Jim Cramer: The FDIC Can't Handle All The Banks At Risk


We have seen the abyss, and it is the FDIC.

Yesterday we saw what will happen without a bailout bill. Most banks will simply cease to exist, IndyMac-style, as we can't possibly find enough buyers fast enough.

Then the FDIC will take them over. They will work to close them and send the deposits to deserving institutions and they will send the bad loans to, well, where? Where exactly? To the FDIC's Resolution Trust Fund? To the unlimited trust pool that it has?

That's what will happen, though. That must be the non-plan plan.

In some ways it isn't all bad, if the FDIC were set up to do it. The banks' execs get broomed. The loans should be negotiated with the government's workout group and sent to the FHA.

But there's one problem. Almost every bank in America needs to be taken over. Almost every bank in America has these same problems. The FDIC default solution leaves us with almost no competing banks, millions of customers who won't get loans because there is no competition for loans and a banking system that simply stops working altogether except for an anointed group who, through a wink and a nod, are told they will not go under no matter what.

In other words, the government anoints Bank of America (STOCK QUOTE: BAC), JPMorgan (STOCK QUOTE: JPM), U.S. Bancorp (STOCK QUOTE: USB), Citigroup (STOCK QUOTE: C) and Wells Fargo (STOCK QUOTE: WFC) and lets the rest fall.

And you know what? Even then you are still going to have to have a place for those bad boys to put their bad real estate loans.

In the end, the FDIC decision wipes out hundreds of thousands of jobs, ends credit as we know it for most Americans and puts our whole country in the hands of five national banks that will still need a bailout!

Now there's a solution.

Why don't the balking congresspeople tell that to their constituents?

Then they might get it!

At the time of publication, Cramer was long JPMorgan.

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