Stop Trading!: Cramer Was Right About Bear Stearns

People who banked with Bear Stearns – hedge funds, prime brokerage clients – haven’t suffered despite the company’s need for a Federal Reserve bailout.

So CNBC stock guru Jim Cramer was right on the money.

Last week, the Mad Money host, responding to a viewer e-mail, emphatically told his viewers not to move their money from the bank, saying, “If anything, they’re more likely to be taken over.” Speaking to Erin Burnett during his regular Stop Trading! segment, he defended his call. Cramer wasn’t recommending the common stock, he said. He was only allaying concerns about Bear’s liquidity.

“If you kept your money at Bear, you made out. You got the liquidity,” Cramer said, referring to the Fed’s back up of Bear’s credit business. So telling people to keep their money in Bear was "100% right. Everybody got guaranteed by the Fed."

The common stock was a different story, though. Once Bear Stearns hit $36 on Friday, “I said the common stock was worthless,” Cramer said. “No one was saying that.”

The Mad Money host pointed out how “stupid, reckless and wrong” it would have been if he’d told people to pull their money out of Bear Stearns, or any other bank for that matter. It could have caused a run on Bear, he said, despite the Fed’s willingness to intervene.

Maybe this all could have been avoided if only the Federal Reserve was willing to buy the huge amount of Fannie Mae paper Bear held, Cramer said. Once that paper went belly up, so did Bear. If the central bank bought the $200 billion worth he recommended, “then Bear would have still been alive.”

As for JPMorgan Chase’s $2-a-share buyout of Bear, “it was a great deal,” Cramer said. They knew they had “the Fed over a barrel. They had all the cards.”

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?