Stop Trading!: Cramer: Obama’s ‘Draconian’ TARP Rules

The conditions under which banks receive government aid just got tougher, it seems. Cramer, during his regular Stop Trading! segment Monday, went so far as to call the new measures “draconian.”

Lawrence Summers, director-designate of President-Elect Obama’s National Economic Council, outlined in a letter to Congress new limitations for financial institutions seeking money from the Troubled Asset Relief Program. The note, which followed Obama’s request to President Bush that he ask for the remaining $350 billion in TARP funds, said that dividend payments beyond “de minimis amounts” would be banned, as would the acquisition of already financially strong companies, and that stock buybacks would be limited. The restrictions seem to leave little wiggle room for struggling banks to get back on their feet.

“This is what you feared if you were a banker if the Democrats came in,” Cramer said, calling the incoming administration’s move “a line in the sand” to separate itself from the policies of President George W. Bush.

“When you vote for the Democrats,” Cramer continued, “they’re not going to favor the banks over the struggling homeowners.” The Democrats will “help the people who are being foreclosed, not the people who are doing the foreclosing.”

Summers’ statement is going to “freak out everybody,” Cramer said, because now it seems like “if you take the money you’re basically a dead bank.” Investors, as a result, will most likely question buying stock in names like Bank of America, Citigroup and others.

The letter leaves questions, too. Buybacks with TARP money are against the rules, but what about overseas acquisitions? Bank of America bought a Chinese bank with government funds, Cramer pointed out. What exactly does de minimis mean in this case? Are banks that meet the TARP restrictions forbidden from using other money they have to pay a dividend, buyback stock or acquire a financially strong company? Can a BB&T merge with SunTrust?

Cramer said Obama’s TARP rules would have been better received once the economy had turned around, but, again, this was largely an attempt buy Obama to distinguish himself from Bush, who’s policies have favored banks, their management and shareholders.

But now, with a Democratic administration coming in, “that’s over,” Cramer said.

Join Cramer live in the studio for Mad Money: The State of Cramerica, a special town hall-style show on Wednesday, Jan. 21. Get your free tickets here!



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