Cramer’s Solution: Zombie Banks


Jim Cramer thinks the increasing cries for bank restructuring are ridiculous.  He prefers zombie banks.

Mad Money: [M]arket myth: nationalizing the banks worked in Sweden so it will work here. I hear this one every day from Nouriel Roubini and it’s now becoming common currency.

Look, this is just a ridiculous concept. Sweden is the size of Georgia for heaven’s sake, and it’s problems had to do with commercial and residential loans-if only our problems were that simple. What we need to do is show forbearance with the banks and let them work out their own issues.

We advance them the money in the form of a net worth certificate, tell them to pay us back when they’ve sold some merchandising or earnings, and let them solve their problems. Give them smaller salaries and equity that they can sell only when they fix things and give the money back. They don’t like it? Go take another job for heaven’s sake! There’s no handcuffs here!

And if they fail to pass the “stress-test” after we try my forbearance plan, then we seize them. I think that will work-it’s how we dealt with the Savings and Loan crisis. Why are we looking to Sweden when we have a perfectly good model in our own recent history? And can someone please tell me who the heck runs a nationalized bank? Come on, who do we have in government that understands the complexity of a Citigroup or a Bank of America? Ask yourself, do you like how they run Amtrak? The post office? The banks need to work it out themselves.

Remind us why would we change the rules to protect banks that don’t deserve protection and then wait to see if this works?  Don’t we want strong banks now?   Citi is already surving only because we gave it $45 billion…and we’ve already waited 18 months.  Why wait another few years?

And remember, too, that these rules aren’t something we imposed on the banks after the fact. They were crystal clear…and the banks benefited from them all the way up (mark-to-market works both ways).  Now that mark-to-market is hurting instead of helping and regulatory capital requirements are a threat to survival instead of a sensible cushion, the banks want the rules changed.  Well, of course they do. 

And screw that.  Lots of people who screw up would love the rules changed in hindsight.  And this isn’t a case in which the rules weren’t absolutely clear.