The deal between Pfizer and Allergan was originally supposed to allow them to come together in a legal way to take advantage of the lower tax rate Allergan has being domiciled in Ireland.
Cramer pointed out that there is no law that says Allergan and Pfizer cannot do this. In fact, it was the lack of laws that allowed them to do it.
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The "Mad Money" host interviewed Treasury Secretary Jack Lew in 2014 at the Delivering Alpha conference. Cramer pressed him on why the IRS couldn't use rulemaking, given that the inverted companies were still U.S. based, not based overseas. It seemed silly to Cramer that Lew could just change regulations to make these inversions more difficult to do.
"We do not believe we have the authority to address this inversion question through administrative action. If we did, we would be doing more," Lew said.
When Cramer spoke with Allergan CEO Brent Saunders back in February, he assured Cramer that the deal was constructed in a highly legal way.
"I don't want to oversimplify, but by instituting what is known as a three-year look back clause into the inversion debate, Lew effectively made a regulation that selectively applied only to Allergan. Let's call it the anti-Pfizer-Allergan regulation," Cramer said.
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The destruction of capital in Allergan should serve as a warning that the government can be a powerful opponent to wealth creation, Cramer added. If the Treasury can change rules after assuring him that it couldn't, that makes all stocks worth a little less.
If investors own the stock of a company that is doing everything right and by the book, then it makes sense to have certain investible expectations — such that Allergan could close the deal with Pfizer.
"Government risk means you always need to worry that might not be the case. Maybe Brent Saunders read the country wrong when he said this deal would go through, because he sure reached the wrong conclusion along with his investors who were along for this broken ride," Cramer said.
Disclaimer: Cramer's charitable trust had a position in Allergan at the time this article was published