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Bankruptcy Looming for BP?

Because of the potential for a near infinite number of claims from the Gulf of Mexico oil spill, Cramer said Tuesday, bankruptcy is "very much on the table" for BP .

It's "magical thinking" to believe the company's cash flow of nearly $7 billion a quarter is enough to get them through the disaster, Cramer said. Virtually any storm that blew through the Gulf of Mexico would "swallow the company," but a big storm “could be a catastrophe for BP." Plus, he thinks a finding of guilt is a "real possibility" once a Justice Department investigation is complete.

"If we get indictments," Cramer said, "the claims will overwhelm the company, and it will be in BP's interest to file bankruptcy in order to manage the process."

Some have likened the present situation to the Exxon Valdez spill, but Cramer thinks it's more like the troubles we saw with asbestos, where a long list of companies filed bankruptcy to handle the endless claims from those exposed to the toxic substance. Asbestos companies knew their product hurt people, Cramer said, but they did not stop using it. When the lawsuits came in, they said things were under control because the insurance companies were handling things. But they went bankrupt after they became overwhelmed with non-stop claims over the fatal lung disease caused by asbestos.

Apart from those who were killed while working on the Transocean rig, the BP oil spill has not resulted in death, but Cramer thinks the sheer volume of claims makes the analogy work. He doesn't think one company can make good on all the claims that will be filed.

"Its not on the top of anyone's mind that this could happen because BP is a huge company with lots of resources," Cramer said. "But so were all of the companies that made asbestos."

BP remains an "uninvestable" and dangerous stock, Cramer said, "even down here."

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