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Auction TARP Warrants?

Thursday, 16 Jul 2009 | 8:05 PM ET
Eureka Moment
Cramer's latest revelation.

When America’s banks took Troubled Asset Relief Program money during the heart of the credit crisis, they also issued equity warrants to the government. These were derivatives that entitled Washington to buy a certain amount of shares of each company. The problem, though, is that no one knows how to value the warrants now that the TARP funds have been repaid.

The scenario can work out one of two ways: Either the banks underpay when they buy back the warrants, thereby ripping off the taxpayers, Cramer said, or they overpay and suffer penalization from the government. State Street bought back its warrants for about $11 when they probably should have fetched $15. Even JPMorgan Chase CEO Jamie Dimon said on his conference call today that he doesn’t know how the situation will resolve itself.

Cramer thinks he’s found a solution, though, and he shared it with Mad Money viewers on Thursday. Watch the video for his full report.

Cramer's charitable trust owns JPMorgan Chase.

Call Cramer: 1-800-743-CNBC

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