Why Hank Paulson Is Right

Don’t listen to all the critics trying to shout down the moves Washington made to instill some stability in this market, Cramer said. We needed the government to get involved so we could avoid another Great Depression.

The financial system is built on confidence and as of 48 hours ago, there was none in the system. Fannie Mae and Freddie Mac got bailed out despite confident announcements of strength just days before. AIG is saved after the feds put their foot down, refusing to help out Lehman Brothers. Washington had dumped $900 billion into trying to put an end to the housing and credit crises, and it wasn’t working. So as massive as Treasury Secretary Hank Paulson’s plan is to clear the bad mortgage-related paper from the market (something Cramer’s been calling for on Mad Money), and as severe at the SEC’s decision to temporarily ban short selling may seem, they were both essential, Cramer said.

Now the potential for the downfall of every major financial institution is off the table. This Wall Street catastrophe is no longer in danger of jumping to Main Street. There’s no need to worry about runs on the weaker banks like Wachovia and Washington Mutual.

No, the plan isn’t perfect. Cramer is vehemently against the SEC’s total ban on short selling. All the federal regulator had to do was get rid of naked short selling and bring back the uptick rule. Both measures worked well for a long time (actually until Chairman Christopher Cox took over and ignored the first and eliminated the second, respectively).

But in the end, Cramer said, this is a small price to pay to save the market. Hedge funds that were heavy on shorts will probably go belly up. So be it. The government may soon be the owner of bunch of mortgages, but Paulson and company already got $6 trillion worth when they took over Fannie and Freddie. And there’s a way to value these mortgages so that those who caused the problem get their due. Cramer’s suggestion was for Washington to pay 10 cents on the dollar for home-equity loans and first mortgages for 30 cents. Then bundle all of them by geography and vintage, paying less for California 2005 and Florida 2006 mortgage-backed securities. That way we reward the responsible, Cramer said, and punish the reckless.

What about taxpayer money, which is what has probably brought the loudest screams of protest? Cramer’s response: It’s too late. If interest rates had been cut a year ago when he called for it, we wouldn’t be in this mess. Besides, aren’t we paying for the $500 billion spend on the Iraq war? Can’t we spend it on this? There’s also a good chance that if the government buys all that bad paper at Cramer’s suggested prices, then it will become profitable as housing bottoms and then turns up. Then the burden’s no longer on the taxpayer.

The bottom line: Cramer fully endorses Paulson’s plan to save this market and he gives the Treasury secretary credit for taking action – even if the idea did start right here on Mad Money.

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com