Stop Trading!: Save the Banks
While some financials like Lehman Brothersfight to stay alive, others like Wells Fargo are outperforming.
That’s because Wells could very well be the beneficiary of a government bailout of Lehman , should that happen, Cramer said during Thursday’s Stop Trading!, or Washington Mutual , which is also struggling.
Mergers under duress may give some investors pause, but Cramer pointed out that this is the strategy that worked in 1991. Bank of America bought its biggest rival, Security Pacific. That, too, is when Wells Fargo became a much better bank.
Lehman’s troubles have been the main topic of discussion since Monday’s Fannie Mae and Freddie Mac bailout, while Washington Mutual has the “worst collection of subprime loans in the world,” Cramer said, adding that former CEO Kerry “Killinger killed the bank.” WM might have a strong deposit base and other assets, but lack of SEC enforcement when it comes to full disclosure might be hiding much more toxic parts of the bank.
If the Federal Reserve cut rates to 1% as they did under Alan Greenspan, then Wells Fargo could invest its – and maybe those of Washington Mutual if Wells took the bank over – deposits at 2%, making enough money to send this $33 stock to $50.
“Wells Fargo’s a winner here,” Cramer said.
Of course any bailout would mean more of a burden on the American taxpayer, but Cramer said the cost is worth bearing if it means saving the banking system. We don’t want to fall into another Great Depression. So more company failures, whether they be at Citigroup , AIG or Merrill Lynch, which just fell through the $22 mark.
“It’s obvious the banking system’s falling apart,” Cramer said. “Let’s save it before it goes to zero.”
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